International Review of Environmental and Resource Economics > Vol 11 > Issue 1

Out of Sight, Not Out of Mind: Developments in Economic Models of Groundwater Management

Phoebe Koundouri, Athens University of Economics and Business, International Center for Research on the Environment and the Economy, United Nations Sustainable Development Solutions Network, Greece and Grantham Research Institute, London School of Economics, UK, , Catarina Roseta-Palma, ISCTE — Instituto Universitário de Lisboa, Portugal, , Nikolaos Englezos, University of Piraeus and International Center for Research on the Environmental and the Economy, Greece,
Suggested Citation
Phoebe Koundouri, Catarina Roseta-Palma and Nikolaos Englezos (2017), "Out of Sight, Not Out of Mind: Developments in Economic Models of Groundwater Management", International Review of Environmental and Resource Economics: Vol. 11: No. 1, pp 55-96.

Publication Date: 24 Oct 2017
© 2017 P. Koundouri, C. Roseta-Palma, and N. Englezos
Environmental economics,  Public economics,  Choice modeling,  Stochastic model,  Water
JEL Codes: Q25C6Q51
Dynamic models of groundwater resource managementDynamic cost benefit analysisUncertaintyDiscountingTotal economic valuePolicy instruments


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In this article:
1. Introduction 
2. The Building Blocks of Economic Models for Groundwater Management 
3. What If We Are Not Sure? The Impact of Uncertainty in Groundwater Management 
4. The Value of Groundwater: Seen and Unseen 
5. The Way Forward 


Dynamic models of natural resource management have been applied to groundwater for decades, incorporating at least two inescapable aspects: first, since groundwater stocks are carried over to future periods, dynamic analysis is essential and any costs and benefits included in the analysis will require discounting; second, the positive and normative aspects of management must be clarified at the outset. The difference is fundamental even if the results of the two model types sometimes turn out to be fairly close. A whole strand of literature has been preoccupied with the question of whether policy interventions at least have the potential of improving groundwater management in a meaningful sense. However, given the well-documented parlous state of many aquifers around the world today, the focus has mostly shifted from debating whether or not intervention is worthwhile to identifying the relevant features of complex groundwater systems, designing better policies and facilitating their successful implementation. We survey developments in economic models relevant to groundwater management, focusing especially on the depiction of uncertainty and on the different methods applied to estimate the total economic value of groundwater.