spatial externalities in aquifers with varying thickness theory and numerical results for the ogallala aquifer

• DOI: 10.22004/ag.econ.150553
• Publication Date: 2018-11-01
• Authors: Peterson, Jeffrey M.; Saak, Alexander E.; Peterson, Jeffrey M.; Saak, Alexander E.
• Keywords: 2. Zero hunger; Resource /Energy Economics and Policy; 0502 economics and business; 05 social sciences; Land Economics/Use; Research Methods/ Statistical Methods; 6. Clean water; Land Economics/Use, Research Methods/ Statistical Methods, Resource /Energy Economics and Policy,

Abstract This article studies the divergence in the planning and equilibrium solutions for a multicell aquifer with heterogeneity in cell depths. A spatial model is developed that accounts for the lateral movement of water between cells. The optimal steady state of this problem is compared with the competitive equilibrium steady state. Studying the steady state conditions in the two outcomes allows the nature of the spatial externalities to be characterized and reveals the effects of varying cell depths. In a two-cell specification of the model, closed-form expressions are derived for the difference in optimal steady state water table elevations between the two cells. The two-cell model is then applied numerically to quantify the spatial externalities and asymmetry effects in Sheridan County, Kansas, which overlies the Ogallala aquifer. Simulated welfare losses in this model are relatively large and are sensitive to the asymmetry in cell depths.