Quantity-quality management of a groundwater resource by a water agency

This paper constructs a dynamic game model to address the following groundwater management problem, where quantity and quality of the water are taken into account. A group of farmers overexploits a groundwater stock and causes excessive pollution. A water agency wishes to regulate the farmers' activity, in order to reach a minimum level of quantity and quality but is subject to a budget constraint and can only use regulatory policies that do not vary over time. The model takes into account the strategic interaction between farmers and the hierarchical relationship between the water agency and the farmers. Regulated and laisser-faire scenarios are compared. Results consist in a set of conditions under which constant policies can bring the groundwater resource back to the desired states. In an example, it is shown how this decision making tool could help de ne environmental tax policies. JEL classi cation: H23, Q15, Q25.