Environmental and Resource Economics

, Volume 54, Issue 3, pp 443–469 | Cite as

Cooperative Management of Groundwater Resources in the Presence of Environmental Externalities

  • Encarna Esteban
  • Ariel Dinar


This paper investigates how cooperation among users can achieve a better management of groundwater in the presence of environmental externalities. Cooperation allows users to internalize the damages caused by their activities and reduce extractions. The paper develops a game theoretical framework to assess the value of cooperation in an aquifer that is divided into three sub-aquifers that are being overly exploited. Two types of externalities are modeled: first, water extractions in each sub-aquifer impact water levels in neighboring sub-aquifers (extraction externality). Second, the three sub-aquifers are also connected to an ecosystem and thus decisions in each sub-aquifer affect the health of the ecosystem (environmental externality). A cooperative game theory model is applied. The model empirically shows how the uncontrolled extractions in each sub-aquifer affects neighboring groundwater users but also cause severe impacts to the linked ecosystem. The model is tested empirically in one of the most important aquifers in Spain, the Eastern la Mancha aquifer. The results illustrate how both extraction and environmental externalities interact in affecting the likelihood of cooperation among the users. The paper estimates the value of cooperation and its stability with and without the environmental externality.


Cooperation Non-cooperation Externalities Common-pool resources Groundwater management Ecosystem Game theory Shapley value Nash-Harsanyi solution Core Public choice 

JEL Classification

D62 D7 Q25 Q28 


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Copyright information

© Springer Science+Business Media B.V. 2012

Authors and Affiliations

  1. 1.Department of BusinessCentro Universitario de la DefensaZaragozaSpain
  2. 2.Water Science and Policy CenterUniversity of CaliforniaRiversideUSA

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