Externality and common-pool resources: The case of artesian aquifers

This study examines a specific class of common-pool resources whereby rivalry is not characterized by competition for the resource stock. Artesian aquifers are a typical example of such resources since the stock never depletes, even when part of the resource is extracted. We first propose a dynamic model to account for the relevant features of such aquifers such as the water pressure and well yield and characterize the corresponding dynamics. We then compare the social optimum with the private exploitation of an open-access aquifer. The comparison of these two equilibria highlights the existence of a new source of inefficiency. In the long run, this so-called pressure externality results in an additional number of wells for the same water consumption, thereby raising costs. Finally, we characterize a specific stock-dependent tax to neutralize the pressure externality.

Automated summary

This study focuses on a specific class of common-pool resources, such as artesian aquifers, where competition for resource stock is not the defining characteristic. A dynamic model is proposed to account for the features of such aquifers and compare the social optimum with private exploitation of open-access aquifers, revealing a new source of inefficiency known as pressure externality. In the long run, this externality results in additional wells for the same water consumption, leading to increased costs, and a specific stock-dependent tax is proposed to offset this externality.