Accounting For Well Capacity in the Economic Decision Making of Groundwater Users
Water conflicts unfolding around the world present the need for accurate economic models of groundwater use which couple traditional producer theory with hydrological science. We present a static optimization problem of individual producer rents, given groundwater as a variable input to production. In a break with previous literature, the model allows for the possibility of binding constraints on well capacity, which occur due to the finite lateral speed at which water moves underground. The theoretical model predicts that binding well yield constraints imply producers extract as much water as ...