Consumption of Groundwater as A Private or A Public Good

Groundwater constitutes a resource asset that generates economic benefits. These benefits are at the same time subject to externalities of one kind or another. This article examines the trade-off involved in using depletive or non-depletive extraction policies in groundwater exploitation. A perfect system of recharge in non-depletive use of groundwater means that the total amount of water available for use is unaffected. Rivalry between consumers would not exist. Therefore, groundwater could be considered to be a public good, as described by Samuelson in 1954. On the other hand, where extraction is depletive, it must then be considered a private good. The problem then lies in the optimisation of the resources allocation to be exploited using either one of these two alternatives and to determine the optimum number of consumers for each option. Once the problem has been analysed from a Paretian point of view, no interior solution exists. Maximum social welfare must necessarily be derived from using either one or the other of the two solutions possible. © 1989, Elsevier B.V.