Environmental Economics Seminar
Stackelberg competition in groundwater resources with multiple uses
Julia De Frutos Cachorro
Assisitant profesor at University of Barcelona
We study a problem of exploitation of a groundwater resource, used mainly for irrigation, in which a regulator intervention is needed in order to manage an exceptional extraction of water for an alternative/new use. To this goal, we build a two-stage discrete Stackelberg game in which the leader (the regulator) just intervenes when the new use takes place (in the second stage) and the follower is a representative agent for agricultural users. We study two types of Stackelberg equilibrium, which can arise depending on the type of existing commitment behavior between the agents, namely open-loop (commitment) equilibrium and feedback (time-consistent) equilibrium. We analyze and compare extraction behaviors of the different agents for the different equilibria and the consequences of these extraction behaviors for the final state of the resource and the agents’ profits. For the case of linear agricultural revenues, theoretical results show that commitment strategies lead to higher stock levels than non-commitment strategies when the leader’s weight assigned to the agricultural profits is lower or equal than the one assigned to the non-agricultural profits. However, performing numerical simulations for other economic assumptions, we show that there are situations in which non-commitment strategies could be more favorable than commitment strategies not only in terms of final stock of the resource but also in terms of agricultural profits.
Co-authors : Guiomar Martín-Herrán et Mabel Tidball
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