IDEAS home Printed from https://ideas.repec.org/a/inm/oropre/v57y2009i6p1333-1346.html
   My bibliography  Save this article

A Deterministic Smart Market Model for Groundwater

Author

Listed:
  • John F. Raffensperger

    (Department of Management, University of Canterbury, Christchurch, New Zealand)

  • Mark W. Milke

    (Department of Civil and Natural Resources Engineering, University of Canterbury, Christchurch, New Zealand)

  • E. Grant Read

    (Department of Management, University of Canterbury, Christchurch, New Zealand)

Abstract

Efficient management of water requires balancing environmental needs, externality considerations, and economic efficiency. Toward that end, this paper presents a deterministic linear program that could be used to operate a smart spot market for groundwater. The market design uses the existing hydrological programs MODFLOW and GWM along with standard linear programming methods. In principle, a market could be set up anywhere that a MODFLOW model is available. The market design has parallels to markets in the electricity and gas sectors, which we discuss. We present a case study with notional bids for Marlborough, New Zealand. Our approach would reduce transaction costs for a water market, reduce users' risk, and increase the reliability of environmental flows. We discuss a number of cautions and limitations to the model and recommend further work on introducing a stochastic framework to the model.

Suggested Citation

  • John F. Raffensperger & Mark W. Milke & E. Grant Read, 2009. "A Deterministic Smart Market Model for Groundwater," Operations Research, INFORMS, vol. 57(6), pages 1333-1346, December.
    • Handle: RePEc:inm:oropre:v:57:y:2009:i:6:p:1333-1346
    DOI: 10.1287/opre.1090.0730
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/opre.1090.0730
    Download Restriction: no
    File URL: https://libkey.io/10.1287/opre.1090.0730?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Murphy, James J. & Dinar, Ariel & Howitt, Richard E. & Rassenti, Stephen J. & Smith, Vernon L. & Weinberg, Marca, 2004. "Incorporating Instream Flow Values Into A Water Market," Working Paper Series 14525, University of Massachusetts, Amherst, Department of Resource Economics.
    2. James Murphy & Ariel Dinar & Richard Howitt & Steven Rassenti & Vernon Smith, 2000. "The Design of ``Smart'' Water Market Institutions Using Laboratory Experiments," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 17(4), pages 375-394, December.
    3. Ronald G. Cummings & Charles A. Holt & Susan K. Laury, 2004. "Using laboratory experiments for policymaking: An example from the Georgia irrigation reduction auction," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 23(2), pages 341-363.
    4. Benoît Bourbeau & Teodor Gabriel Crainic & Michel Gendreau & Jacques Robert, 2003. "Design for Optimized Multi-Lateral Multi-Commodity Markets," CIRANO Working Papers 2003s-36, CIRANO.
    5. R. H. Coase, 2013. "The Problem of Social Cost," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 837-877.
    6. Easter, K William & Rosegrant, Mark W & Dinar, Ariel, 1999. "Formal and Informal Markets for Water: Institutions, Performance, and Constraints," The World Bank Research Observer, World Bank, vol. 14(1), pages 99-116, February.
    7. Nir Becker, 1995. "Value of moving from central planning to a market system: lessons from the Israeli water sector," Agricultural Economics, International Association of Agricultural Economists, vol. 12(1), pages 11-21, April.
    8. Bill Provencher, 1993. "A Private Property Rights Regime to Replenish a Groundwater Aquifer," Land Economics, University of Wisconsin Press, vol. 69(4), pages 325-340.
    9. Bidwell, V.J., 2005. "Realistic forecasting of groundwater level, based on the eigenstructure of aquifer dynamics," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 69(1), pages 12-20.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Anetta Caplanova & Keith Willett, 2019. "Emission Discharge Permit Trading and Persistant Air Pollutants (A Common Pool Market Application with Health Risk Specifications)," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 25(1), pages 19-38, February.
    2. Filippelli, Raphael & Termansen, Mette & Hasan, Syezlin & Hasler, Berit & Hansen, Line & Smart, James C.R., 2022. "Water quality trading markets – Integrating land and marine based measures under a smart market approach," Ecological Economics, Elsevier, vol. 200(C).
    3. Zhiling Guo & Gary J. Koehler & Andrew B. Whinston, 2012. "A Computational Analysis of Bundle Trading Markets Design for Distributed Resource Allocation," Information Systems Research, INFORMS, vol. 23(3-part-1), pages 823-843, September.
    4. Raffensperger, John F., 2011. "Matching users' rights to available groundwater," Ecological Economics, Elsevier, vol. 70(6), pages 1041-1050, April.
    5. Biggar, Darryl R. & Hesamzadeh, Mohammad Reza, 2022. "Welfare-maximising dispatch and pricing of water in a gravity-fed river network," Energy Economics, Elsevier, vol. 108(C).
    6. Tajbakhsh, Alireza & Hassini, Elkafi, 2022. "A game-theoretic approach for pollution control initiatives," International Journal of Production Economics, Elsevier, vol. 254(C).
    7. Ellen M. Bruno & Richard J. Sexton, 2020. "The Gains from Agricultural Groundwater Trade and the Potential for Market Power: Theory and Application," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(3), pages 884-910, May.
    8. Syezlin Hasan & Line Block Hansen & James C. R. Smart & Berit Hasler & Mette Termansen, 2022. "Tradeable Nitrogen Abatement Practices for Diffuse Agricultural Emissions: A ‘Smart Market’ Approach," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 82(1), pages 29-63, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kristiana Hansen & Jonathan Kaplan & Stephan Kroll, 2014. "Valuing Options in Water Markets: A Laboratory Investigation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 57(1), pages 59-80, January.
    2. Raffensperger, John F., 2011. "Matching users' rights to available groundwater," Ecological Economics, Elsevier, vol. 70(6), pages 1041-1050, April.
    3. Johannus Janmaat, 2011. "Water Markets, Licenses, and Conservation: Some Implications," Land Economics, University of Wisconsin Press, vol. 87(1), pages 145-159.
    4. Debaere, Peter & Li, Tianshu, 2017. "The Effects of Water Markets: Evidence from the Rio Grande," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 259187, Agricultural and Applied Economics Association.
    5. repec:ags:ubzefd:148054 is not listed on IDEAS
    6. James J. Murphy & Ariel Dinar & Richard E. Howitt & Erin Mastrangelo & Stephen J. Rassenti & Vernon L. Smith, 2006. "Mechanisms for Addressing Third-Party Impacts Resulting From Voluntary Water Transfers," Chapters, in: John A. List (ed.), Using Experimental Methods in Environmental and Resource Economics, chapter 5, Edward Elgar Publishing.
    7. Basil Sharp, 2002. "Institutions and Decision Making for Sustainable Development," Treasury Working Paper Series 02/20, New Zealand Treasury.
    8. Mani Rouhi Rad & Taro Mieno & Nicholas Brozović, 2022. "The Role of Search Frictions and Trading Ratios in Tradable Permit Markets," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 82(1), pages 101-132, May.
    9. Noussair, C.N. & van Soest, D.P., 2014. "Economic Experiments and Environmental Policy : A Review," Discussion Paper 2014-001, Tilburg University, Center for Economic Research.
    10. Holzer, Jorge & McConnell, Kenneth, 2023. "Extraction rights allocation with liquidity constraints," Resource and Energy Economics, Elsevier, vol. 71(C).
    11. Suresh P. Sethi & Sushil Gupta & Vipin K. Agrawal & Vijay K. Agrawal, 2022. "Nobel laureates’ contributions to and impacts on operations management," Production and Operations Management, Production and Operations Management Society, vol. 31(12), pages 4283-4303, December.
    12. Charles A. Holt & Cathleen A. Johnson & Courtney A. Mallow & Sean P. Sullivan, 2012. "Water Externalities: Tragedy of the Common Canal," Southern Economic Journal, John Wiley & Sons, vol. 78(4), pages 1142-1162, April.
    13. John Raffensperger & Thomas Cochrane, 2010. "A Smart Market for Impervious Cover," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 24(12), pages 3065-3083, September.
    14. Persson, Torsten & Tabellini, Guido, 2002. "Political economics and public finance," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 24, pages 1549-1659, Elsevier.
    15. Frans P. Vries & Nick Hanley, 2016. "Incentive-Based Policy Design for Pollution Control and Biodiversity Conservation: A Review," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 63(4), pages 687-702, April.
    16. George Tridimas & Stanley L. Winer, 2018. "On the Definition and Nature of Fiscal Coercion," Carleton Economic Papers 18-09, Carleton University, Department of Economics.
    17. Mario Jametti & Thomas von Ungern-Sternberg, 2005. "Assessing the Efficiency of an Insurance Provider—A Measurement Error Approach," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 30(1), pages 15-34, June.
    18. Stefan Ambec & Yann Kervinio, 2016. "Cooperative decision-making for the provision of a locally undesirable facility," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 46(1), pages 119-155, January.
    19. Kurtis Swope & Ryan Wielgus & Pamela Schmitt & John Cadigan, 2011. "Contracts, Behavior, and the Land-assembly Problem: An Experimental Study," Research in Experimental Economics, in: Experiments on Energy, the Environment, and Sustainability, pages 151-180, Emerald Group Publishing Limited.
    20. Ralph E. Townsend, 2010. "Transactions costs as an obstacle to fisheries self-governance in New Zealand," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 54(3), pages 301-320, July.
    21. Simon Levin & Anastasios Xepapadeas, 2021. "On the Coevolution of Economic and Ecological Systems," Annual Review of Resource Economics, Annual Reviews, vol. 13(1), pages 355-377, October.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:oropre:v:57:y:2009:i:6:p:1333-1346. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.