Groundwater Management When Water Quality Is Endogenous

This paper brings quality considerations into a deterministic model of resource management. It would be natural to suppose that optimal management yields a larger aquifer of better quality than what private agents achieve. However, this paper shows that intervention may lower quantity while improving quality or vice versa. It is also shown that, despite the external costs associated with contaminant discharges, the stationary level of discharges chosen by the users of groundwater may be higher or lower than the efficient level, as long as water quality is higher in the efficient solution.