Groundwater is vital for freshwater consumption and economic activities, but its over-extraction leads to negative externalities like reduced water quality and land subsidence. Strategies to address these issues include monitoring use, legal regulation, and varying water pricing based on forecasts. Effective groundwater resource management requires a comprehensive understanding of its economic value for sustainable allocation.

1. Environment and Resource Economics
Shivraj Singh Negi
HS07H022

2. Groundwater
 It provides about one-third of the world’s freshwater
consumption.
 Input for many economic activities as well as used as a
product.
 Has always been regarded as a common property resource.
 Collects slowly over very long periods of time as water
seeps in from the surface.

3. Groundwater Use Externalities
 Water level descents, surface water flow reduction, water
quality deterioration, land subsidence.
 Water quality is also degraded due to excessive extraction.
 Degradation of aquatic ecosystems.
 Soil salinity in areas served by canals. Importing Surface
Water from far off areas creates its own set of problems.
 South Asia is the largest user of groundwater and
groundwater irrigation plays a crucial role in supporting its
largely agrarian economies.

4. Why Externalities Arise?
 Public Good, Private benefits from Public Costs.
 People who extract them and use them are not paying
their scarcity rents (both in terms of quality and
quantity); they only pay the private extraction costs.
 Problems are associated with identifying , measuring
and making strategies/policies to tackle the
externality.

5. Quantifying and Measuring Techniques
 Cost Benefit Analysis
 Revealed preference
methods
 Hedonic Pricing Method
 Travel cost method
 Replacement cost method
 The Avertive Expenditures
Method
 Production function
approach
 Net factor income
 Cost-of-illness (COI)
method
 Market prices

6. Quantifying and Measuring Techniques
 Stated preference methods
 Contingent valuation method
 Choice experiment method

7. Strategies and Policies
 Different strategies/policies for different kinds of
externalities.
 Legalizing Illegal well and monitoring consumption.
 Monitoring electricity consumption for water
pumping.
 Using weather forecasts to charge variable prices for
water.
 In case of agriculture, rationed supply of electricity for
water pumping.
 Monitoring Groundwater Quality to ensure that
water prices reflect the cost of using such water.

8. Conclusion
 Studies suggest that different pricing mechanisms do
affect water usage patterns.
 This effect is generated mainly as a result of water
pricing providing incentives to the modification of
production methods.
 Total Economic Value of groundwater resources
should be determined in order to make sustainable,
efficient and equitable allocation.

9. References
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11. References
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water allocation on energy and groundwater demand
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 Rimjhim M. Aggarwal, T. A. (2004 ). Does inequality lead to
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12. References
 Sahuquillo, A. (1989). Economic Aspects of the Conjunctive
Use of Ground and Surface Water. Developments in Water
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 Santiago J. Rubio, B. C. (2001). Competitive versus efficient
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