Aquifer Management Establishing a Tradable Water Rights System: The Effect of Natural Discharge and Salinity

Economic instruments such as tradable water rights systems have been proposed as cost-effective methods for managing groundwater. The relevant literature shows that the majority of the relevant studies do not consider aquifer’s natural discharge, which is expected to have a significant impact on the determination of the optimal groundwater management policy. This paper attempts to highlight the impact of considering natural discharge in the formulation of groundwater management policies. Thus, two different cases of aquifer management are considered and the corresponding time-dynamic problems are solved by considering natural discharge in order to derive optimal trajectories for a number of key variables. These cases are (1) non-intervention – full competition and (2) intervention with a tradable water rights system. The results obtained from simulations on a coastal aquifer show that indeed not considering the natural discharge leads to an overestimation of the benefits from groundwater consumption that can reach 5.79% in the case of non-intervention and in the case of intervention with a tradable water rights system.