Optimal joint management of a coastal aquifer and a substitute resource

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Abstract

[1] This article characterizes the optimal joint management of a coastal aquifer and a costly water substitute. For this purpose we use a mathematical representation of the aquifer that incorporates the displacement of the interface between the seawater and the freshwater of the aquifer. We identify the spatial cost externalities created by users on each other and we show that the optimal water supply depends on the location of users. Users located in the coastal zone exclusively use the costly substitute. Those located in the more upstream area are supplied from the aquifer. At the optimum their withdrawal must take into account the cost externalities they generate on users located downstream. Last, users located in a median zone use the aquifer with a surface transportation cost. We show that the optimum can be implemented in a decentralized economy through a very simple Pigouvian tax. Finally, the optimal and decentralized extraction policies are simulated on a very simple example.

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