A groundwater market model

Abstract

We introduce the problem of groundwater trading, capturing the emergent groundwater market setups among stakeholders in a given groundwater basin. The agents optimize their production, taking into account their available water rights, the requisite water consumption, and the opportunity to trade water among themselves. We study the resulting Nash equilibrium, providing a full characterization of the 1-period setting and initial results about the features of the multi-period game driven by the ability of agents to bank their water rights in order to smooth out the intertemporal shocks.