Underground economics: A study of groundwater management

Cynthia Helen Lay Harter, Purdue University

Abstract

This dissertation is an analysis of local groundwater management as a possible solution to the overuse problem that results when access to this common-pool resource is not limited. We present problems that are associated with increasing use of the resource and identify determinants of the costs and benefits of local groundwater management. We present a theoretical framework of resource management systems as institutional structures. We show how current groundwater management practices fit this characterization and discuss costs associated with resource management systems. We propose specific hypotheses about the effects of operational and organizational decisions on management costs. We provide the methodology and results of a survey of local groundwater managers throughout the U.S. Through the survey, we gather data on the costs and benefits associated with the management process. Using ordinary least squares procedures, we conduct an empirical investigation of groundwater management costs. We find that a logarithmic specification of the cost function best fits our data and that the distribution of our data is representative of the distribution of data obtained by the 1987 U.S. Census of Governments and of groundwater districts, in general. We identify the important determinants of management costs and conclude that groundwater districts that there are significant cost effects associated with a pricing mechanism. Our research shows that local groundwater management districts are examples of Ostrom's self-governing CPR management institutions. We use logit analysis to identify the determinants of the benefits of local groundwater management. Based on the results, for districts with groundwater quantity problems, we recommend a system of pricing to allocate the resource combined with a system of fees based on non-water units. Also, we find that there is an increased probability in realizing improvement in groundwater quantity problems if the district has a water delivery system. This thesis provides a new perspective on resource management by focusing on the costs and benefits of management rather than extraction.

Degree

Ph.D.

Advisors

McCarthy, Purdue University.

Subject Area

Economics|Agricultural economics

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