Optimal policies for protecting the quality of groundwater

Abstract

This paper provides an analytical framework for use by a regional authority when assessing the potential impacts of a policy initiative directed at improving groundwater quality. In particular, a policy model is developed relying on three decision components (a farm level production decision model, a household decision model and a regional policy decision model) where the objective is that of identifying the trade-offs that a regional authority will be confronted with as it strives to balance the preferences of farmers and households while endeavoring to maximize net economic welfare. The basic rule developed indicates that the regional authority must choose a policy such that any increase (decrease) in regional income is just equal to the decrease (increase) in net benefits to households.