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Sustainability 2014, 6(9), 5598-5638; doi:10.3390/su6095598

Social Investment for Sustainability of Groundwater: A Revealed Preference Approach

Department of Agricultural Economics, Purdue University, West Lafayette, IN 47907-4773, USA
Received: 4 March 2014 / Revised: 23 July 2014 / Accepted: 31 July 2014 / Published: 27 August 2014
(This article belongs to the Special Issue Sustainability and Institutional Change)
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Abstract

Groundwater is a form of natural capital that is valued for the goods it provides, including ecosystem health, water quality, and water consumption. Degradation of groundwater could be alleviated through social investment such as for water reuse and desalination to reduce the need for withdrawals from groundwater. This paper develops a participatory planning process—based on combining revealed preference with economic optimization—to choose a desired future for sustaining groundwater. Generation of potential groundwater futures is based on an optimal control model with investment and withdrawal from groundwater as control variables. In this model, groundwater stock and aquatic health are included as inter-temporal public goods. The social discount rate expressing time preference—an important parameter that drives optimization—is revealed through the participatory planning process. To implement the chosen future, a new method of inter-temporal pricing is presented to finance investment and supply costs. Furthermore, it is shown that the desired social outcome could be achieved by a form of privatization in which the pricing method, the appropriate discount rate, and the planning period are contractually specified. View Full-Text
Keywords: groundwater; sustainability; optimal control; revealed preference; social investment; privatization; water pricing; public participation; planning process; backcasting groundwater; sustainability; optimal control; revealed preference; social investment; privatization; water pricing; public participation; planning process; backcasting
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This is an open access article distributed under the Creative Commons Attribution License (CC BY 3.0).

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Tusak Loehman, E. Social Investment for Sustainability of Groundwater: A Revealed Preference Approach. Sustainability 2014, 6, 5598-5638.

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