A study of Groundwater externalities and methods of determining a price for these externalities and strategies to tackle them.

1. Environment and Resource Economics
Shivraj Singh Negi
HS07H022

2. Groundwater
 It 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.

3. Groundwater Use Externalities
 Water 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.

4. 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.

5. Quantifying and Measuring Techniques
 Cost Benefit Analysis
 Revealed preference
methods
 Hedonic Pricing Method
 Travel cost method
 Replacement cost method
 The Avertive Expenditures
Method
 Production function
approach
 Net factor income
 Cost-of-illness (COI)
method
 Market prices

6. Quantifying and Measuring Techniques
 Stated preference methods
 Contingent valuation method
 Choice experiment method

7. Strategies and Policies
 Different 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.

8. Conclusion
 Studies 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.

9. References
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11. References
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12. References
 Sahuquillo, A. (1989). Economic Aspects of the Conjunctive
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