Groundwater Extraction in the South Korea’s Jeju Island: A Real Options Game Approach under Price Uncertainty

Round 1

Reviewer 1 Report

The authors develop a non-cooperative sequential game model to investigate groundwater development investments.  The model is parameterized using data from Jeju island.  Results demonstrate that the leading player in the sequential game enjoys substantial benefits when deferring the entry of the following player.  The paper is an interesting application of a standard game theory/dynamic programming model to the highly relevant area of groundwater investments and use.

Major Comments:

1. I do not see a research question clearly articulated in the introduction. The paper would benefit from a research question motivating the model and analysis, e.g. this paper aims to understand …
2. Grammatical and syntactic errors are abundant throughout the paper. Additional editing and proofreading is necessary.
3. Equation 1: The authors need to explicitly define the elements of the equation. The reader is left wonder what q_i(t) represents among other parameters.  It does not become clear what many of the parameters are until the empirical analysis section.  If rho is a discount factor, then that needs to be stated.  This section needs significant to make it interpretable to readers without a graduate level class in game theory/dynamic programming.
4. There is a great deal of literature that looks at the limits of bath-tub models such as the one developed here (see work by N. Brozovic). It would be useful to mention how this assumption affects your results.
5. Another useful extension to at least mention would be the inclusion of a backstop water source (e.g. desalination) or aquifer thresholds. For example, what happens when aquifer overdraft results in salt water intrusion?  How might information about this threshold influence optimal investment and extraction decisions?
6. Lines 11-12: I am not sure where this assertion is backed up in the text.  It seems that that this may be the goal of figure 2.  If so, the authors need to explain in the text how the figure backs up the assertion.

Minor Comments:

1. Line 125: Is it really an empirical analysis?  I don’t see an empirical model anywhere.  I think you mean a simulation model.  Consider changing section 3 title to ‘Simulation.”
2. Line 195: The rent equalization mention merits a citation.
3. Line 222: There are engineering relationships/ equations you can use to estimate pumping costs as a function of 1) fuel type e.g. electricity and 2) depth to water. Consider taking this approach.  See Hendricks and Peterson (2012) or Pfeiffer and Lin (2014) for more information.
4. Figure 5: This figure is confusing. It makes it seem as if the aquifer is

Author Response

Thank you for your constructive comments and suggestions. The revision has strengthened the paper in multiple ways. Please see the attached file for the responses to your comments.

Author Response File: Author Response.pdf

Reviewer 2 Report

I have read with interest the paper titled Groundwater Extraction in the South Korea’s Jeju Island: A Real Options Game Approach under Price Uncertainty. I found it provides a good original contribution to the literature and to knowledge, especially providing a detailed modelling game approach. 

I have however two main suggestions:

• contextualise the game and the paper within the literature of groundwater governance, in particular highlighting how groundwater resources need to be contextualised within the multi-scalar dimensions. This is an important characteristic of groundwater resources, as well as the fact they are invisible and therefore add an additional challenge for their governance and management. Please read this paper of Luis de Silva and incorporate in your paper the multi-scalar dimensions Luis highlights: da Silva, L. P. B., et al. (2019). Production of scale in regional hydropolitics: an analysis of La Plata River Basin and the Guarani Aquifer System in South America. Geoforum, 99, 42-53.
• The game approach needs to be contextualised within other games of environmental governance; see for instance the work of Bruce Lankford on game theory in water and irrigation, or the work of Ana Elisa Cascao on game theory for Water Diplomacy. This would help in contextualising your paper within this literature.

I hope these two suggestions are helpful in improving your paper. Happy to look at a revised version of the paper. 

Author Response

Thank you for your constructive comments and suggestions. The revision has strengthened the paper in multiple ways. Please see the attached file for the responses to your comments.

Author Response File: Author Response.pdf

Round 2

Reviewer 2 Report

Nice

well improved