Managing groundwater in the presence of asymmetry: Three essays

The three essays in this dissertation address the theoretical and policy implications of managing groundwater resources when there are asymmetries imposed by physical relationships in the hydrology or by the heterogeneous nature of the groundwater users themselves. I explore the theoretical properties of non-cooperative and strategic groundwater pumping behavior in the presence of asymmetry and use the insights from that model to address two specific empirical settings---namely that of Butte County in Northern California and Hebei Province in Northern China. In this dissertation I extend the current application of dynamic game theory to non-cooperative resource extraction to account for the possibility of asymmetry between users of the common-pool resource. At the same time, I also extend the discussion of groundwater management policy beyond the usual lip-service that is given to the importance of transaction costs, and apply analytical and quantitative economic methods to measure the impact of transactions costs on the performance of groundwater management institutions. Both the empirical treatment of transaction costs, and the introduction of asymmetry into models of strategic interaction represent the innovations embodied in this dissertation.; The first essay extends on a simplified, strategic groundwater pumping model and relaxes the assumption of symmetry among competing resource users. The gains from centralized management are also evaluated in the presence of asymmetry, and the application of robust numerical techniques is also discussed.; The second essay investigates the non-cooperative behavior of surface and groundwater users in Butte County California, and applies the insights from the first essay to better understand how asymmetric hydrological relationships could affect the performance of alternative policy instruments. The results are evaluated under alternative behavioral and hydrological assumptions, and are used to comment on the current policies operating in Butte County.; The final essay studies the groundwater depletion problem on the North China Plain and adds much-needed economic insight into a problem that has been studied almost exclusively from a hydrological point of view. This essay also uses household level data to evaluate the effectiveness of alternative village-level institutions for managing groundwater and how they perform in the presence of transaction costs.