price elasticity of groundwater demand attenuation and amplification bias due to incomplete information measurement errors in both human and natural components of agricultural and environmental systems can be as much a source of estimation bias as omitted variables selfselection simultaneity and reverse causality nonetheless partly because of difficulties in obtaining data there is less literature on measurement error problems than on other endogeneity problems this article examines estimation bias in the price elasticity of groundwater consumption for irrigated agriculture on the intensive margin the price at issue is for the energy used in pumping and pressurizing water for delivery lacking the precise unit irrigation cost previous studies imputed irrigation costs we first consider groundwater irrigation costs and identify factors that can cause measurement errors in the process of imputation under incomplete information about the determinants of irrigation costs we follow this by systematically analyzing the potential bias caused by measurement errors using econometric theory along with monte carlo simulations where appropriate we then quantify actual measurement errors making use of a unique dataset in which energy and groundwater consumption data are matched for individual observations finally we compare regression results using exact irrigation costs as opposed to imputed ones we find evidence of substantial measurement errors resulting in attenuation and amplification bias in the price elasticity of irrigation water consumption on the intensive margin our results indicate that measurement errors in irrigation costs can lead to misleading policy implications related to water and energy pricing as a tool to conserve water we also show that estimating the energy price elasticity of groundwater use is not as straightforward as previously thought

groundwater management efficiency and equity considerations abstract groundwater has the characteristics of commonly owned property and its use is likely to be inefficient in the absence of regulation several management tools can be used to regulate groundwater withdrawals with no one tool dominating the others in terms of efficiency of water use however the welfare distributional effects of various management schemes on individual users who vary in their derived demands for groundwater might be quite substantial and different users may find considerably different schemes attractive the equity problems associated with the division of management benefits may dominate the decisions about support of or opposition to groundwater management and hence they must be undertaken with considerable care and resolved by consensus among users although the negotiations are expected to be extensive and complicated there is a substantial basis for agreement because all users stand to gain the question is who will gain the most

a private property rights regime to replenish a groundwater aquifer groundwater management is often reactive and in some cases the groundwater stock groundwater table of an aquifer may fall below its optimal steady state level before any thought is given to management this paper examines a private property rights regime to restore a groundwater resource to its optimal steady state results from a stochastic dynamic programming model of madera county california show that the private property rights regime recovers about 95 percent of the potential gain from groundwater management

do sticky prices increase real exchange rate volatility at the sector level abstract we introduce the real exchange rate volatility curve as a useful device to understand the relationship between price stickiness and the fluctuations in law of one price deviations in the presence of both nominal and real shocks the theory predicts that the real exchange rate volatility curve is a u shaped function of the degree of price stickiness using sector level us european real exchange rate data and frequency of price changes we estimate the volatility curve and find the predominance of real effects over nominal effects good by good variance decompositions show that the relative contribution of nominal shocks is smaller at the sector level than what previous studies have found at the aggregate level consistent with significant averaging out of good specific real microeconomic shocks

accounting for persistence and volatility of good level real exchange rates the role of sticky information abstract volatile and persistent real exchange rates are observed not only in aggregate series but also in micro price data at the retail level kehoe and midrigan 2007 recently showed that under a standard assumption on nominal price stickiness empirical frequencies of micro price adjustment cannot replicate the time series properties of the law of one price lop deviations we extend their sticky price model by combining good specific price adjustment with information stickiness in the sense of mankiw and reis 2002 our framework allows for multiple cities within a country using a panel of u s canadian city pairs we estimate a dynamic price adjustment process for 165 individual goods under a reasonable assumption on the money growth process we show that the model matches the persistence of the lop deviation for the median good and accounts for the majority of its volatility when information updates occur every 12 months

potential pitfalls for the purchasing power parity puzzle sampling and specification biases in mean reversion tests of the law of one price the ppp puzzle is based on empirical evidence that international price differences for individual goods loop or baskets of goods ppp appear highly persistent or even nonstationary the present consensus is these price differences have a half life that is of the order of five years at best and infinity at worst this seems unreasonable in a world where transportation and transaction costs appear so low as to encourage arbitrage and the convergence of price gaps over much shorter horizons typically days or weeks however current empirics rely on a particular choice of methodology involving i relatively low frequency monthly quarterly or annual data and ii a linear model specification in fact these methodological choices are not innocent and they can be shown to bias analysis towards findings of slow convergence and a random walk intuitively if we suspect that the actual adjustment horizon is of the order of days then monthly and annual data cannot be expected to reveal it if we suspect arbitrage costs are high enough to produce a substantial band of inaction then a linear model will fail to support convergence if the process spends considerable time random walking in that band thus when testing for ppp or loop model specification and data sampling should not proceed without consideration of the actual institutional context and logistical framework of markets

international pollution control cooperative versus noncooperative strategies abstract international pollution control involving two neighboring countries is modeled as a simple two player dynamic game each country produces a good that is consumed by domestic households production of each consumption good results in emissions of pollutants households in each country derive utility from the consumption of the domestically produced good but incur costs through the total stock of pollution stock externality in this setting we characterize cooperative as well as noncooperative pollution control strategies of the governments of the two countries that maximize the discounted stream of net benefits of a representative consumer it turns out that when the governments are restricted to use linear strategies noncooperative behavior results in overall losses for both countries if on the contrary governments use nonlinear markov perfect strategies and the discount rate is small enough a pareto efficient steady state pollution stock can be supported as a differentiable subgame perfect equilibrium thus the emergence of first best solutions cooperative outcomes does not require any institutional arrangements threats retaliation etc but can be brought about through the use of nonlinear markov perfect equilibrium strategies

the law of one price a case study we use retail transaction prices for a multinational retailer to examine the extent and permanence of violations of the law of one price for identical products we find typical deviations of 20 50 percent with some evidence for convergence over time such differences might be due to differences in local costs if so relative prices of similar products round versus square mirrors should be equal across countries in fact relative prices vary significantly across very similar goods within a product group the finding suggests that differences in local distribution costs local taxes and probably tariffs do not explain the price pattern leaving strategic pricing or other factors resulting in varying markups as alternative explanations jel classification f41 l11

pigouvian taxation of energy for flow and stock externalities and strategic noncompetitive energy pricing abstract the literature on energy and carbon taxes is by and large concerned about the derivation of globally efficient strategies in contrast this paper considers the dynamic interactions between cartelized energy suppliers and a consumers government that collectively taxes energy carriers for pigouvian motives two different kinds of external costs are associated with energy consumption flow e g acid rain and stock externalities e g global warming the dynamic interactions between a consumers government and a producers cartel are modeled as a differential game with a subgame perfect nash equilibrium in linear and nonlinear markov strategies the major implications are that the nonlinear solutions are pareto inferior to the linear strategies and energy suppliers may preempt energy taxation and thereby may raise the price at front however this effect diminishes over time because the producers price declines while taxes increase

price index convergence among united states cities we study the dynamics of price indices for major u s cities using panel econometric methods and find that relative price levels among cities mean revert at an exceptionally slow rate in a panel of 19 cities from 1918 to 1995 we estimate the half life of convergence to be approximately nine years the surprisingly slow rate of convergence can be explained by a combination of the presence of transportation costs differential speeds of adjustment to small and large shocks and the inclusion of nontraded goods prices in the overall price index do price indices in major u s cities share a common trend and if so how quickly do they revert to that trend following a local shock to the price index to answer this question we study the dynamics of consumer price indices for 19 major u s cities over the period from 1918 to 1995 the panel time series methods we employ are now commonly used for studying real output growth rates and levels of real exchange rates across countries we estimate that price index divergences across u s cities are temporary but surprisingly persistent with a half life of nearly nine years our research has two primary motivations first we hope to gain a better understanding of the sources of persistence in the deviations from purchasing power parity ppp found in studies of national price indices and exchange rate data second and more importantly we see the european monetary union as having many similarities to the united states and believe that studying the behavior of prices across u s cities will help us in understanding the likely nature of inflation convergence in the euro area the european central bank s stated inflation objective is a year on year change in the harmonized index of consumer prices hicp of not more than 2 but how large might we expect regional deviations from this euro area wide average to be and how long are they likely to persist the lack of data prevents us from answering this question directly using european prices under monetary union instead we look to the united states a mature common currency area of similar regional diversity size and industrial development

nonlinear strategies in dynamic duopolistic competition with sticky prices abstract we discuss nonlinear strategies in an infinite horizon duopoly game with sticky prices where firms maximize their discounted sum of profit we construct a stationary feedback equilibrium without guessing value functions and feedback strategies that solve the hamilton jacobi equation for this purpose we study the auxiliary equation that is derived from the hamilton jacobi equation we show that the domain of the state space plays an crucial role in characterizing feedback equilibria and discuss several implications of this observation in particular we find that when the upper bound of the state space is not very high previously unknown feedback equilibria emerge

the economics of conjunctive groundwater management with stochastic surface supplies abstract groundwater management with stochastic surface flows and artificial recharge is considered theoretical analysis characterizes the decision rules and establishes conditions for convergence of socially optimal and common property withdrawals and pumping lifts to limiting probability distributions an empirical application to kern county california finds that optimal withdrawals are generally increasing in hydraulic head and decreasing in surface flows however nonmonotone behavior is observed in some instances artificial recharge is not observed in the limiting distribution due to an interaction of several factors optimal management implies relatively small gains over unregulated groundwater use when preferences are risk neutral

are you risk averse over other people s money decisions with uncertain outcomes are often made by one party in settings where another party bears the consequences whenever an individual is delegated to make decisions that affect others such as in the typical corporate structure does the individual make decisions that reflect the risk preferences of the party bearing the consequences we examine this question in two simple settings lottery choices and sealed bid auctions using controlled laboratory experiments we find that when an individual makes a decision for an anonymous stranger there is a tendency to exhibit less risk aversion this reduction in risk aversion is relative to his or her own preferences and it is also relative to his or her belief about the preferences of others this result has significant implications for the design of contracts between principals and agents

a private property rights regime for the commons the case for groundwater we compare the social welfare of pumping groundwater under central optimal control to that obtained under a private property rights regime in which firms are granted tradeable permits to the in situ groundwater stock when firms are risk averse both regimes are suboptimal and the matter of which regime yields greater welfare is an empirical one when firms are risk neutral central control dominates the private property rights regime still a stochastic dynamic programming model of madera county california demonstrates that even in this case the private property rights regime is a promising alternative to central control

rainwater harvesting and groundwater conservation when endogenous heterogeneity matters in this paper we focus on resource conservation in a model of decentralized management of groundwater and rainwater we show that a conservation policy may have opposite effects on the level of the resource depending on the outcome of the decentralized management more precisely we consider identical farmers who can use two water resources groundwater and or rainwater and we study the symmetric and asymmetric feedback stationary nash equilibria of the dynamic game we show that a subsidy on the use of rainwater may increase the level of the aquifer at the symmetric equilibrium whereas it decreases the level of the aquifer at the asymmetric equilibrium this suggests that the usual focus on interior symmetric equilibria in dynamic games may provide misleading policy implications

the law of one price intranational evidence for canada this study investigates the behaviour of intranational prices for 45 specific consumer goods across 25 canadian cities it finds positive roles for distance and provincial borders in intercity price disparities while sizable the provincial border effect is an order of magnitude smaller than the estimates for the canada u s border a majority of the intercity relative price series are stationary around small mean values indicating that long run price differences are close to zero the intercity prices converge at rates considerably faster than the consensus estimates for international prices in fact half lives for intercity price deviations average well under a year jel classification f15 f31 la loi d un seul prix resultats intra nationaux pour le canada ce memoire examine le comportement des prix intra nationaux de 45 biens de consommation specifiques dans 25 villes canadiennes il semble que la distance et les frontieres inter provinciales ont un impact sur les differentiels de prix entre villes meme si l impact des frontieres inter provinciales est important il est beaucoupplus petit que l impact de la frontiere canada u s une majorite des series de prix relatifs entre villes sont stationnaires autour de petites valeurs moyennes ce qui suggere que les differences de prix a long terme s approchent de zero il est clair que les prix entre villes convergent a des taux considerablement plus rapides que ce qu on observe au niveau international en fait les deviations de prix entre villes ont une esperance de vie qui en moyenne est de moins d un an

the demand for irrigation water in the high plains of texas 1957 80 a new method of calculating groundwater pumpage is used to estimate water demand these results are used via the gisser sanchez model to show that pumpage regulation is unlikely to be beneficial in the texas high plains a sensitivity analysis is performed on present value profits under optimal control and competitive schemes using different water demand slope and intercept values the results indicate that the gisser sanchez rule is useful in determining the divergence in pumpage time paths and percentage difference in profits under the two schemes but it is not insightful in determining the nominal difference in profits

the externalities associated with the common property exploitation of groundwater abstract in this paper the rate of groundwater extraction under the common property arrangement is the outcome of a dynamic game played with feedback strategies the analysis clarifies the externalities associated with the common property extraction of groundwater and identifies an risk externality that arises when firms are risk averse identifying the various externalities bears on the development of appropriate forms of groundwater management in particular the risk externality would be unknown to the watermaster of a central control agency suggesting the need for creative decentralized forms of groundwater management

cadillac desert revisited property rights public policy and water resource depletion to alleviate arizona s dependence on groundwater the federal government subsidized construction of the central arizona project cap to import water from the colorado river in exchange for the subsidy arizona reformed its groundwater law to eliminate common property pumping and to ban groundwater mining after the year 2025 we build a model of water resource development in which imported water is a capacity constrained backstop the model is applied to quantify the welfare effects of alternative cap construction dates and arizona groundwater laws we reach two general conclusions first cap was completed 86 years too early in 1987 at a deadweight loss of 2 612 billion ironically construction in 1987 yielded lower surplus than never constructing cap second the political exchange of reform for subsidy introduced a greater loss 2 612 billion than it corrected 0 810 billion the exchange was worse than doing nothing at all

sharing a groundwater resource in a context of regime shifts we study the occurrence of shocks in a common groundwater resource problem using a differential game in particular we use rubio and casino s adaptation of the gisser and sanchez model where we introduce a sudden change in the dynamics of the resource namely a decrease in the recharge rate of the aquifer we compare the pareto optimal solution with open loop and feedback equilibria first we show analytically how different solutions at the steady state depend on the intensity of the shock moreover we show that the cost and the strategic effects are decreasing functions of the intensity of the shock i e that all the solutions get closer at the steady state for more intense shocks we finally apply the game to the particular case of the western la mancha aquifer the aim of this application is to estimate how shocks influence the inefficiency of open loop and feedback strategies in terms of welfare we show that this inefficiency decreases the earlier the shock occurs or the higher the intensity of the shock

benefits from groundwater management magnitude sensitivity and distribution empirical estimates of benefits from groundwater management are reported for an area in california with heavy reliance on groundwater supplies benefits are quite sensitive to the water demand schedule and interest rate but less sensitive to other parameters however in all cases considered the increases in welfare from groundwater management are less than ten percent tax revenues received under a system of pump taxes are four to five times as large as the benefits from management thus groundwater users gain under a system of quotas but may suffer substantial welfare losses under pump taxes

the law of one price without the border the role of distance versus sticky prices we examine the role of nominal price rigidities in explaining the deviations from the law of one price lop across cities in japan focusing on intra national relative prices isolates the border eect and thus enables us to extract the pure eect of sticky prices a two city model with nominal rigidities and transportation costs predicts that the variation of lop deviations is lower for goods with less frequent price adjustment after controlling for the distance separating the cities using retail price data for individual goods and services collected in japanese cities we find strong evidence supporting this prediction adapting the engel and rogers 1996 regression framework to our theoretical setting we quantify the separate roles of nominal rigidities and trade costs proxied by distance in generating lop variability our estimates suggest that the distance equivalent of nominal rigidities can be as large as the width of the border typically found in the literature on international lop deviations the findings point to both the utility of the regression framework in identifying qualitative eects i e sign of a coecient and the challenges interpreting their quantitative implications

optimal management of a confined groundwater system abstract dynamic programming is applied to a relatively simple economic and hydrologic model of a confined aquifer system in southwest montana to determine an optimal interseasonal allocation schedule the derived decision rule demonstrates the economic advantage of maintaining a confined groundwater system while localized intraseasonal loss of the artesian pressure may occur it is important to maintain this pressure from year to year because of its role in reducing extraction costs the welfare gap as measured by differences in the net present value of economic returns to the basin under an optimal use policy versus an uncontrolled common pool situation is not trivial sensitivity analysis indicates that assumptions about uniformity of land productivity vis a vis their impact on the shape of the returns function the discount rate and the level of electric power rates are particularly critical with respect to the magnitude of the commonality problem

the micro macro disconnect of purchasing power parity abstract this paper reconciles the persistence of aggregate real exchange rates with the faster adjustment of international relative prices in microeconomic data error correction model estimates indicate that a different mix of shocks drives international price deviations at the microeconomic level and that dynamic adjustment works through arbitrage in the goods market rather than the foreign exchange market when half lives are estimated conditional on a common set of estimated macro shocks we find that micro relative prices exhibit every bit as much persistence as aggregate real exchange rates these results challenge theories of real exchange rate persistence based on sticky prices and heterogeneity across goods

betrayal aversion evidence from brazil china oman switzerland turkey and the united states comment in a series of binary choice problems we investigate how a chooser s risk taking changes when others share in their personal risk either equally or unequally we find that when the safe option yields inequality the risky option is taken significantly more often on the other hand the inequality resulting from the risky choice does not affect risk taking we also find that choosers tend to be less risk averse in a one person context compared to when the risk also affects the payoff of another c72 d81 z13

income distributional effects of using market based instruments for managing common property resources in this article the authors show the trade offs between efficiency and equity that arise from the application of market based instruments to a heterogenous population of agents drawing from a natural resource pool using the example of groundwater they find that there are overall losses in allocative efficiency when the centralized planner is constrained by equity considerations and that the distribution of gains or losses to management becomes skewed asymmetrically across agents these results demonstrate the importance of considering both efficiency gains and disparities in distributional inequity when designing policy instruments that create winners and losers with potentially serious sociopolitical ramifications

using tradable water permits in irrigated agriculture the present paper examines both theoretically and empirically the environmental and economic benefits of introducing a policy to optimally manage groundwater used in irrigated agriculture and the efficiency potential of allowing trading of water permits we confirm the results appearing separately in the literature on optimal resource management and tradable permits that both tradable water permits and non tradable quotas provide the basic mechanism for sustainable water use and yield substantial economic benefits and that allowing trading of water permits improves efficiency in order to derive the above results we develop a discrete time model to realistically describe farmer s myopic behavior while using a continuous time model to describe optimal management we also incorporate into the analysis the economic effect of sea water intrusion in the aquifer and we estimate the cost of water overexploitation under myopic behavior the empirical part of the paper is based on simulations using data from an agricultural region in northern greece the main contribution of the paper is the introduction of heterogeneity in crops production and market characteristics we show that the more diverse are the crops in technology and market prices and the stricter is the water constraint the higher are the benefits from using a tradable water permit system

intranational price convergence and price stickiness evidence from denmark we show that estimates of the half life of deviations from loop are biased when not taking into account the precision when aggregating over types of goods using a comprehensive dataset with monthly price data for 124 homogeneous products across regions in denmark over the period 1997 2010 we find a large positive aggregation bias on average we find that the half life is 8 4 months when taking the bias into account compared to 28 7 months when applying the standard method the heterogeneity in estimated half life can be explained by price stickiness distance between regions and whether the good is traded or non traded this article is protected by copyright all rights reserved

global versus local shocks in micro price dynamics a number of recent papers point to the importance of distinguishing between the price reaction to macro and micro shocks we emphasize instead the importance of distinguishing between global and local shocks we exploit a panel of 276 micro price levels collected on a semi annual frequency over two decades in 59 countries around the world that enables us to distinguish between different types global and local of macro and micro shocks we find that global macro and micro shocks are always associated with a slower response of prices than the respective local shocks focusing on structural monetary macro shocks we show that prices reach their long run value much slower in response to a global macro shock as compared to the time it takes for prices to reach their long run value in response to a local macro shock

leviathan governments and carbon taxes costs and potential benefits abstract this paper addresses positive aspects of the global warming debate that so far has been concerned by and large with normative issues the paper considers a consumers government that appreciates tax revenues as such leviathan in addition to conventional measures of welfare i e carbon taxes serve the dual purpose of correcting for externalities here global warming or more generally a stock externality from energy use and of raising revenues this government faces either a competitive or a perfectly cartelized supply the major findings are 1 i consumers may benefit from a leviathan government that appropriates some of the monopoly rent by deterring preemption to some extent 2 ii the leviathan motive raises initial taxes and thereby lowers initial emissions but increases the long run stock externality in a play with linear strategies 3 iii there exists a continuum of equilibria in nonlinear markov strategies which are however pareto inefficient compared with the linear strategies 4 iv but in case of a binding resource constraint nonlinear strategies are the only feasible ones

five facts about prices a reevaluation of menu cost models are price decreases 3 the frequency of price increases covaries strongly with inflation whereas the frequency of price decreases and the size of price increases and price decreases do not 4 the frequency of price change is highly seasonal it is highest in the first quarter and then declines 5 we find no evidence of upwardsloping hazard functions of price changes for individual products we show that the first second and third facts are consistent with a benchmark menu cost model whereas the fourth and fifth facts are not

on the social dimension of time and risk preferences an experimental study when explaining risk taking intertemporal allocation and distributing behavior economists rely on risk time and other regarding preferences but offer no guidance on how these three crucial aspects are interrelated we report on an experiment exploring such interrelation for this sake we compare evaluations of several prospects each of which allocates certain or risky and immediate or delayed payoffs to the actor and to another participant we find that individuals are selforiented as to social allocation of risk and delay and other regarding with respect to expected payoffs jel c91 d63 d81 there is ample empirical evidence that people do not behave rationally when rationality implies maximization of one s own material rewards to gain flexibility economists have taken into account nonlinear evaluation of material rewards e g in the familiar form of utility of money functions as well as social utilities including other regarding concerns like altruism as in andreoni and miller 2002 inequality aversion as in fehr and schmidt 1999 and bolton and ockenfels 2000 or quasi maximin preferences as in charness and rabin 2002 undeniably this provides a rich toolbox for neoclassical repair which allows aligning rational choice predictions with empirical data on decision behavior nonetheless this toolbox may be

price level convergence new evidence from u s cities abstract this paper tests the bilateral price level convergence among 52 u s cities at the good level by using a new econometric approach the estimated median half lives are far below the half lives found in the corresponding studies for the u s

groundwater use under incomplete information abstract this paper introduces a game theoretic model of groundwater extraction in a two cell aquifer under incomplete information a novel assumption is that individual users have incomplete knowledge of the speed of lateral flows in the aquifer although a user is aware that his neighbor s water use has some influence on his future water stock he is uncertain about the degree of this impact we find that the lack of information may either increase or decrease the rate of water use and welfare in a two period framework the relevant characteristic is the ratio of the periodic marginal benefits of water use depending on whether this ratio is convex or concave the average speed with which the aquifer is depleted decreases or increases when users learn more about the local hydrologic properties of groundwater in principle welfare may decrease even in cases when the groundwater allocation is closer to the efficient groundwater allocation

groundwater focusing on the real issue most studies of the welfare economics of groundwater have focused mainly on the dichotomy between optimal control of groundwater use and no control at all this article argues that under circumstances that generally prevail in semiarid zones assigning property rights to groundwater and permitting the market to determine the allocation of water use can lead to a second best solution an argument is made that if potential users would be allowed to coase bargain with incumbent users on the issuance of new groundwater rights the second best solution is elevated to a pareto optimal solution this article is also a tale of two states water law and performance in new mexico and arizona

a note on coupled lotteries we study the impact of coupling a decision maker s lottery payoffs to those of a peer on the preferred level of risk by means of a lab experiment compared to the benchmark where the lotteries are paid off individually symmetrically coupled payoffs increase the willingness to take risks whereas asymmetrically coupled payoffs have the opposite effect moreover subjects with persistent choices in the different conditions behave more risk averse than subjects with non persistent behavior

current issues in the economics of groundwater resource management the issue of groundwater management remains a practical concern in many regions throughout the world while water managers continue to grapple with the question of how to manage this resource in this article we attempt to bring the most advanced and appropriate tools to bear on the issue of resource allocation involving groundwater our objective is to demonstrate the state of the art in the literature on ways to think about this complex resource and to deal with the important economic issues emanating from its complexity we present the conceptual framework within which economists examine the elements interacting in the management of groundwater resources indicate why the role of the market is limited with respect to the price of this very complex resource and point to the mechanisms that can pull competitive groundwater price and quality graded quantity of groundwater in line with their equilibrium levels in particular we critically review economic models of groundwater use examine the potential for groundwater management discuss the difficulties encountered in the estimation of the relevant control variables of such models and identify the advantages and limitations of the instruments devised for the efficient use allocation of this resource finally we argue that devised regulatory schemes usually ignore the information and knowledge needed for their implementation and we suggest a core of conditions necessary for successful groundwater management reforms

optimal management of a renewable and replaceable resource the case of coastal groundwater the nonrenewable with backstop model of resource management is extended to cover renewables and applied to the case of coastal groundwater in the optimal management trajectory efficiency price exceeds extraction cost by the sum of scarcity rent and drawdown cost the latter remaining large even after the backstop price is reached in the case of rising demand optimal management may call for a stage of conservation followed by a stage of drawdown

the effects of well management and the nature of the aquifer on groundwater resources we compare groundwater use under collective well management in china where village leaders allocate water among households and under private well management where farmers either pump from their own wells or buy water from wells owned by other farmers villages are divided into connected or isolated groups depending on whether there are lateral groundwater flows between aquifers underlying a village and neighboring ones in rural china households under collective well management use less water even under collective management households located in connected villages use more water indicating that the connectedness of the aquifers may undermine leaders incentives to conserve water

uncertainty and irreversibility in groundwater resource management abstract optimal exploitation of renewable groundwater resources when extraction affects the probability of occurrence of an irreversible event is studied the term irreversible signifies that the event occurrence renders the resource obsolete it is found that uncertainty concerning the event occurrence has a profound effect under certainty when the stock level below which the event occurrence has a profound effect the optimal state process converges to a unique equilibrium state under uncertainty when the event occurrence level is unknown we identify equilibrium intervals and show that optimal processes initiated elsewhere converge to a boundary of one of these intervals inside an equilibrium interval the expected loss due to the event occurrence is so high that it does not pay to extract in excess of recharge even though under certainty doing so would be beneficial

competitive versus efficient extraction of a common property resource the groundwater case abstract in this paper socially optimal and private extraction of a common property aquifer are compared open loop equilibrium and feedback equilibrium in linear strategies have been computed to characterize private extraction the use of these two equilibrium concepts allows us to distinguish between cost and strategic externalities as long as the open loop solution captures only the cost externality and the feedback solution captures both the results show that strategic behaviour increases the overexploitation of the aquifer compared to the open loop solution however if the groundwater storage capacity is large the difference between the socially optimal and private extraction the latter characterized by a feedback equilibrium is negligible

efficient spatial allocation of irrigation water in the presence of conveyance losses the efficient quantity of water applied falls with distance from the water source but the amount of water sent including conveyance losses actually increases with distance from the source except toward the tail end of the inigation system this implies that if marginal cost pricing were implemented farmers at the middle and lower reaches of the system would have to pay more money for less water received the model is illustrated and alternative financing schemes compared for an empirically derived demand function for imgation water despite massive public investments in irrigation infrastructure ex post evaluations of irrigation projects in developed and developing countries indicate that actual benefits are substantially below projected levels considerable evidence suggests that these low benefits are largely the result of poor on farm water use efficiencies and rent seeking activities that result from water charges that are low and often unrelated to water use chaudhry repetto bowen and young for example farmers near the system headworks are said to consume a disproportionate share of irrigation water while tail farmers are left with scanty and unreliable residual supplies reidinger wade many governments faced with increasing political pressure to conserve water and reduce fiscal deficits are considering higher water charges to decrease waste and increase cost recovery from project beneficiaries there is also increased awareness that low water charges and loosely enforced water rationing guidelines lead to environmental damages and excessive mining of groundwater resources in general the problems of water allocation and low user charges contribute to derivative problems in achieving efficiency equity fiscal stability and environmental sustainability

the role of common pool problems in irrigation inefficiency a case study in groundwater pumping in mexico groundwater depletion is a serious problem in mexico several policy alternatives are currently being considered in order to improve the efficiency of irrigation water use so that extraction of groundwater is diminished an understanding and quantification of different sources of inefficiency in groundwater extraction is critical for policy design survey data from a geographically extensive sample of irrigators is used to gauge the importance of common pool problems on input specific irrigation inefficiency results show that mechanisms of electricity cost sharing implemented in many wells have a sizable impact on inefficiency of irrigation application moreover irrigation is very inelastic to its own unitary cost therefore results suggest that policies aimed at eliminating electricity cost sharing mechanisms would be significantly more effective than electricity price based policies in reducing irrigation application results also show that well sharing does not affect groundwater pumping significantly suggesting either a limited effect of individual pumping on water level or absence of strategic pumping by farmers sharing the wells

a dynamic approach to pes pricing and finance for interlinked ecosystem services watershed conservation and groundwater management a theory of payment for ecosystem services pes pricing consistent with dynamic efficiency and sustainable income requires optimized shadow prices since ecosystem services are generally interdependent this requires joint optimization across multiple resource stocks we develop such a theory in the context of watershed conservation and groundwater extraction the optimal program can be implemented with a decentralized system of ecosystem payments to private watershed landowners financed by efficiency prices of groundwater set by a public utility the theory is extended to cases where land is publicly owned conservation instruments exhibit non convexities on private land or the size of a conservation project is exogenous in these cases conservation investment can be financed from benefit taxation of groundwater consumers while volumetric conservation surcharges induce inefficient water use a dynamic lump sum tax finances investment without distorting incentives since the optimal level of conservation is generated as long as payments are correct at the margin any surplus can be returned to consumers through appropriate block pricing the present value gain in consumer surplus generated by the conservation induced reduction in groundwater scarcity serves as a lower bound to the benefits of conservation without explicit measurement of other benefits such as recreation biodiversity and cultural values

misery loves company social regret and social interaction effects in choices under risk and uncertainty abstract extensive field evidence shows individuals decisions in settings involving uncertainty depend on their peers decisions one hypothesized cause of peer group effects is social interaction effects an individual s utility from an action is enhanced by others taking the same action we employ a series of controlled laboratory experiments to study the causes of peer effects in choice under uncertainty we find strong peer group effects in the laboratory our design allows us to rule out social learning social norms group affiliation and complementarities as possible causes for the observed peer group effects leaving social interaction effects as the likely cause we use a combination of theory and empirical analysis to show that preferences including social regret are more consistent with the data than preferences including a taste for conformity we observe spillover effects as observing another s choice of one risky gamble makes all risky gambles more likely to be chosen

joint quantity quality management of groundwater economic literature on groundwater managementhas traditionally been split into two areas there are papers that evaluate different schemes of dynamicaquifer management considering that pumping costs vary with stock but ignoring water quality on the other hand there are papers that considercontamination problems caused by specificpollutants this paper presents two alternative models for joint quantity quality management and it shows that existing models are in fact special cases of these the framework isdynamic and considers both the stock of waterquantity and a stock measure of water quality optimal taxes are derived and shown to be different from those in existing quantity only or quality only models implementationproblems are briefly discussed

strategic behavior and efficiency in the common property extraction of groundwater groundwater has always been regarded as a common property resource where entry is restricted by land ownership and private exploitation is inefficient in 1980 gisser and sanchez presented a first estimation of this inefficiency cornparing socially optimal exploitation with private competitive exploitation using a model with linear water demand average extraction cost independent of the rate of extraction and linearly decreasing with respect to the water table level they characterized the private exploitation of the aquifer assuming that farmers are myopic and choose their rate of extraction to maximize their current profits whereas optimal exploitation is obtained by maximizing the present value of the stream of aggregate profits their results show that if the storage capacity of the aquifer is relatively large the difference between the two systems is so small that it can be ignored for practical consideration this result has been called the gisser sanchez rule by nieswiadomy 1985 and it has and important policy implication regulation of the resource does not seem justified since the profits it brings are not very high 1

optimal groundwater extraction under uncertainty and a spatial stock externality we introduce a model that incorporates two important elements to estimating welfare gains from groundwater management stochasticity and a spatial stock externality we estimate welfare gains resulting from optimal management under uncertainty as well as a gradual stock externality that produces the dynamics of a large aquifer being slowly exhausted this groundwater model imposes an important aspect of a depletable natural resource without the extreme assumption of complete exhaustion that is necessary in a traditional single cell bathtub model of groundwater extraction using dynamic programming we incorporate and compare stochasticity for both an independent and identically distributed as well as a markov chain process for annual rainfall we find that the spatial depletion of the aquifer is significant to welfare gains for a parameterization of a section of the ogallala aquifer in kansas ranging from 2 9 to 3 01 which is larger than those found previously over the region surprisingly the inclusion of stochasticity in rainfall increases welfare gains only slightly

aggregation is not the solution the ppp puzzle strikes back we acknowledge financial support from the spanish ministry of education through grants sej2006 00369 and sej2005 05215 the fundacion ramon areces the barcelona economics program of crea and from the aragon s research unit seim

unbiased estimation of the half life to ppp convergence in panel data three potential sources of bias introduce complications for panel data estimation of the half life of purchasing power parity deviations they are bias induced by inappropriate cross sectional aggregation of heterogeneous coefficients small sample estimation bias of dynamic lag coefficients and bias induced by time aggregation of commodity prices all of these biases have been addressed individually in the literature in this paper we address all three biases in arriving at our estimates using an annual panel data set of cpi based real exchange rates for 21 oecd countries from 1973 to 1998 we obtain a point estimate of the unbiased half life of 3 0 years with a 95 confidence interval of 2 3 4 2 years

the behaviour of relative prices in the european union a sectoral analysis using multivariate unit root test methods this paper investigates the purchasing power parity ppp hypothesis at the sectoral level across six european countries over the last 17 years evidence of mean reversion towards ppp is found for the relative prices of some sectors and countries mean reversion in relative prices is explained by cross country and cross sectoral characteristics such as the distance between countries nominal exchange rate volatility differences in gdp per capita non tariff barriers research and development advertising industrial concentration and tradeability of the products

pareto improving water management over space and time the honolulu case we model welfare gains from efficient allocation of groundwater over space and time relative to the status quo policy of financial cost recovery in order to promote political feasibility an intertemporal compensation plan is devised that renders the reform pareto improving gainers from the reform finance the compensation in proportion to their benefits through a block pricing scheme for the honolulu case only 7 of the 441 million in gains to winners is needed to compensate losers from the reform future winners from the reform also repay the deficit created by the compensation package much as state and local governments finance capital improvements copyright 2009 oxford university press

the role of responsibility in strategic risk taking we explore play between groups where one member of each 2 person group dictates the play of that group and is therefore responsible for the payoff of the other group member we compare this to play when the game is the same but each person is playing only for herself consistent with the principle of responsibility alleviation described by charness charness g 2000 responsibility and effort in an experimental labor market journal of economic behavior and organization 42 375 384 we find that a sense of responsibility for the welfare of others has an effect while the issue of responsibility does not appear to influence the decisions of 2 3 of the population almost 90 percent of the remaining 1 3 of the population plays a less risky strategy when choosing for a group than when playing only for herself

aggregate real exchange rate persistence through the lens of sectoral data a novel approach to analyzing real exchange rate rer persistence and its sources is presented using highly disaggregated data for a group of eu 15 countries it is shown that the distribution of sectoral persistence is highly heterogeneous and skewed to the right so that a limited number of sectors are responsible for the high levels of persistence observed at the aggregate level quantile regression has been employed to investigate whether traditional theories such as the lack of arbitrage due to nontradability or imperfect competition combined with price stickiness are able to account for the slow reversion to parity of rers