Groundwater Externalities and Strategies

Environment and Resource EconomicsShivraj Singh Negi

HS07H022

GroundwaterIt provides about one-third of the world’s

freshwater consumption.

Input for many economic activities as well as used as a product.

Has always been regarded as a common property resource.

Collects slowly over very long periods of time as water seeps in from the surface.

Groundwater Use ExternalitiesWater level descents, surface water flow reduction, water

quality deterioration, land subsidence. Water quality is also degraded due to excessive extraction.

Degradation of aquatic ecosystems.

Soil salinity in areas served by canals. Importing Surface Water from far off areas creates its own set of problems.

South Asia is the largest user of groundwater and groundwater irrigation plays a crucial role in supporting its largely agrarian economies.

Why Externalities Arise?Public Good, Private benefits from Public

Costs.

People who extract them and use them are not paying their scarcity rents (both in terms of quality and quantity); they only pay the private extraction costs.

Problems are associated with identifying , measuring and making strategies/policies to tackle the externality.

Quantifying and Measuring TechniquesCost Benefit AnalysisRevealed preference

methodsHedonic Pricing MethodTravel cost methodReplacement cost methodThe Avertive

Expenditures MethodProduction function

approachNet factor incomeCost-of-illness (COI)

methodMarket prices

Quantifying and Measuring TechniquesStated preference

methodsContingent valuation

methodChoice experiment method

Strategies and PoliciesDifferent strategies/policies for different kinds of

externalities.Legalizing Illegal well and monitoring

consumption. Monitoring electricity consumption for water

pumping. Using weather forecasts to charge variable prices

for water. In case of agriculture, rationed supply of

electricity for water pumping. Monitoring Groundwater Quality to ensure that

water prices reflect the cost of using such water.

ConclusionStudies suggest that different pricing

mechanisms do affect water usage patterns. This effect is generated mainly as a result of

water pricing providing incentives to the modification of production methods.

Total Economic Value of groundwater resources should be determined in order to make sustainable, efficient and equitable allocation.

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