April 17, 2011

Optimal Exploitation of Groundwater and the Potential for a Tradable Permit System in Irrigated Agriculture

by Dionysis Latinopoulos and Eftichios Sartzetakis

- The aim of the current study is to explore the feasibility and implementation of a tradable permit system in irrigated agriculture. To this end, two distinct optimization models are applied and compared: (a) an individual farmer’s model (representing the myopic non-cooperative exploitation of groundwater) and (b) a social planner’s model (representing the cooperative and sustainable allocation). The deviation of their results shows the rationale for using a tradable permit system, while the final allocation of the social planner’s model, solved as an optimal control problem that maximizes the social welfare under specific water policy objectives, denotes the equilibrium state of this system. The two models are then applied in a typical rural area of Greece where groundwater is the only source of irrigated agriculture.

Latinopoulos, D. and E. Sartzetakis (2011). "Optimal Exploitation of Groundwater and the Potential for a Tradable Permit System in Irrigated Agriculture." FEEM Note di lavoro No. 2011.026, Mar 2011.