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.