University of California


Knapp, Keith C.

Presentation Title
Sustainability Economics of Agricultural Groundwater Usage and Management
University of California, Riverside
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The talk sets out general principles of economic sustainability and applies them to the groundwater management problem. The common Bruntland Commission sustainability definition is conceptually appealing but lacks sufficient specificity for quantitative policy analysis. Other definitions implicitly or explicitly define sustainability as maintaining existing resource stocks. However, as population and economic growth must inevitably draw down at least some natural resource stocks, this definition can also be limiting as it confuses means with ends, ignores substitution possibilities, and doesn?t indicate how one determines the appropriate stock to maintain. Many studies don?t define sustainability at all. Within the economic literature, there appears to be implicit agreement that sustainability involves a notion of intertemporal equity that future generations not be worse off than preceding generations. However, it would hardly make sense to have an equitable economy in this sense, but inefficient with productivity levels below what is possible. Thus we define sustainability as intertemporal efficiency formulated as Pareto-optimality, and intergenerational equity implied by non-declining utility. Furthermore, as this literature emphasizes, sustainability cannot be determined from analysis of the natural resource stock alone. One must also simultaneously consider accumulation of physical and human capital. Thus, sustainability does not lie solely in the natural science domain as often construed; rather it must be an amalgamation of the natural and social sciences. These ideas are applied to the groundwater management problem. The standard economic analysis of groundwater couples an agricultural production economics model with an aquifer model and analyzes both common property usage and economic efficiency. However, this model cannot be utilized directly for sustainability analysis. First, PV-optimality does not guarantee equity. Second, sustainability is defined over consumption paths, while groundwater extractions generate income streams which are not necessarily synonymous with consumption. Third, as previously noted, substitution possibilities exist as water supplies become scarce. Accordingly, we extend the standard model to include alternate objective functions as well as physical and human capital. We first consider common property usage of a lumped-parameter model in which pumpers extract freely from the aquifer as is commonly the practice in California, but they also invest in a capital stock. Aggregate production in the region is then a function of water extractions and the physical capital stock. The primary question addressed here is whether or not the region will experience continued growth over time, or whether there will be decline over time at some point. Next we consider a present-value (discounting) solution for economic efficiency of the entire system. While this leads to regional efficiency, it does not guarantee equity for future generations. Finally, we consider a model with a sustainability criterion of non-declining utility. While the economic approach to sustainability provides a rigorous and internally consistent definition of sustainability, a variety of issues inevitably arise in practice. These include analytical scale, benefit-cost and policy analysis, and sustainability in open regions. Finally, this analysis can be extended to consider population growth, spatial variability, water quality, conjunctive use, and ecosystem impacts.

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