GW management across borders:

Can experimental economics be of any relevance?1

Ariel Dinar, Water Science and Policy Center, Department of Environmental Sciences, University of California, Riverside, USA Nearly one third of the available freshwater resources are stored in aquifer systems. This suggests that groundwater is a significant source of water supply. Management of groundwater in a sustainable manner is a complicated task on its own, addressing hydrological aspects, let alone coping with political interests and strategic behavior of the users. When water users of transboundary surface water or aquifers belong to different sovereign states, the indirect interest dimension is also brought into the picture to further complicate matters. Domestic groundwater are simpler in that respect and have been studied more extensively than transboundary ones. There are 445 transboundary aquifers identified by the year 2012 (http://www.un-igrac.org/publications/456#) at various levels of conflict/cooperation among the riparian states. This suggests that the transboundary groundwater problem is substantial. Groundwater exploitation practices across borders are often inconsistent, leading to disagreements over appropriation rights and their actual utilization. For example, groundwater aquifers may be replenished mainly by water arriving from one riparian state in the basin, while more appropriation may occur by other riparians to that aquifer. Further, users might be situated in locations that would give them relative advantage in using the aquifer water such as their natural depth to water table. Equitable and effective management practices of transboundary aquifers require, as a necessary condition, a proven hydrological model supported by sound scientific information. At the same time a sufficient condition must be that the political considerations have to be addressed. Very little has been documented on joint management practices of transboundary aquifers. Examples of the Guarani and the Mountain Aquifers For example, The Guarani aquifer shared by Brazil, Paraguay, Uruguay and Argentina, which are known for their present cooperation on water and environmental issues, only recently initiated a multistate project to prioritize management option for the aquifer. Recommendations for joint management include a transboundary institutional model of a Guarani Aquifer Steering Council (that will evolve over time into a more permanent structure. Nevertheless the features and activities include (1) to consult and negotiate on major aquifer development with potential hydrological transboundary effects, (2) mobilize investment for local groundwater development and management institutions, (3) develop a shared vision of resource status, aquifer potential and management needs, and (4) promote further action through local management interventions and procedures (Foster et al, 2009). Another attempt at designing and comparing joint management structures for the aquifers shared by the Palestinian Authority and Israel, and the approach taken by an Israeli-Palestinian team to identify these joint management structures and their relative advantages and disadvantages is presented in Feitelson and Haddad, (1998, 2001).
Notes to be presented at the UC Irvine Conference on Groundwater and Climate Change in the Middle East: Next threat or opportunity for cooperation? November -11. 2012.
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All recommended and on-going activities of developing and evaluating joint management models of transboundary aquifers (e.g., AbuZeid and Elrawady, 2010; Rivera et al., 2010; Nacz, 2012) recognize the need for understanding the hydrologic complications of any joint management practice, using simulations and extended modeling efforts. However, behavioral aspects on the part of the riparian entities are ignored, or assumed to be in line with expectation for cooperation behind the joint management initiatives. This might not be the case, as can be realized by the outstanding problems of joint management structures reported in the literature (not a comprehensive review). Possible role for experimental economics? Recently, an increased number of publications report the useful application of experimental economics approaches to water resource management, including groundwater management (e.g., Dinar et al., 1998; Botelho et al. 2012; Mason and Phillips 1997; Suter et al., 2012; Apesteguia, 2006, to name a few). Experiments in the lab provide important information about possible design of institutions and their likely acceptance by individual (states) in the basin. With some simplifications of the problems to be addressed, experiments, that mimic the reality, provide useful information fast and with relatively much less transaction cost (including the opportunity cost of failure of the implementation of the suggested basin arrangement. Here, the work of Botelho et al., 2012 is summarized with reference to transboundary groundwater. The experiment addresses the two features of groundwater dilemmas: they evolve over time, and they are managed under environmental uncertainties. Evaluation of groundwater management policies could benefit from understanding the strategic behavior of the users who face the uncertain and dynamic nature of the resource. Here we have to admit that one assumption would be hard to accept by non-economistsprofit maximization. In the proposed model, if the level of water in the aquifer is known in advance, then the optimal use coincides with a unique symmetric equilibrium that guarantees sustainability of the resource. As the uncertainty about the threshold level increases, water use increases if users adopt decision strategies that quickly deplete the water stock; however, water use decreases if they adopt path strategies guaranteeing that the unknown threshold level is never exceeded. The results have potentially important theoretical and policy implications. At the theoretical level, they suggest decision strategies that groundwater users may be using when they cannot make credible commitments. At the policy level, the results provide evidence that the reduction of environmental uncertainty by creating and disseminating better scientific information (say, by a basin authority) may play a major role in long-range planning to elicit synergy between the economic and ecological systems that jointly govern the management of shared aquifer. Estimated as the difference between the high- and low-uncertainty outcomes, the value of this information is an indicator to the policy maker about how much effort to invest in setting basin level institutions acquiring and disseminating information to the users so that it reduces uncertainty about the groundwater availability level. Conclusion Experiments have been used in many settings to pre-test reforms and to obtain valuable information that can reduce tremendously the transaction cost of implementation, and to lower the risk of failure. Examining joint managements structures of transboundary aquifers could be evaluated not only on the basis of their ability to produce the pre-determined level of sustainable water stock, but also to assess the willingness of the parties to participate in the

proposed joint management structure, and the means parties take to achieve their strategic goals.

References Feitelson, Eran and Marwan Haddad (1998). Identification of joint management structures for shared aquifers: a cooperative Palestinian - Israeli effort. Technical paper 415, Washington DC: World Bank. Feitelson, Eran and Marwan Haddad (Eds.) (2001). Management of Shared Groundwater Resources: The Israeli-Palestinian Case with International Perspective. Dordrecht, The Netherlands: Kluwer Academic Publishers. Foster, Stephen, Ricardo Hirata, Ana Vidal, Gerhard Schmidt, and Hector Garduo (2009). The Guarani Aquifer Initiative Towards Realistic Groundwater Management in a Transboundary Context. Case Profile Collection 9, Sustainable Groundwater Management: Concepts and Tools Sustainable Groundwater Management Lessons from Practice. Washington DC: World Bank. AbuZeid, Khaled and Mohamed Elrawady, (2010). Sustainable Development of Non-renewable Transboundary Groundwater: Strategic planning and strategic alternatives for the Nubian sandstone aquifer system. Proceedings of the ISARM2010 International Conference: "Transboundary Aquifers: Challenges and new directions", Paris, 6-8 December 2010. Rivera, A., A. Dausman, N. DaFranca, J. Kettlehut, W. M. Alley, R. Chavez-Gillen, M. Espinoza, and O. Tujchneider, (2010). Towards a regional strategy for the management of the transboundary aquifer systems in the Americas. Proceedings of the ISARM2010 International Conference: "Transboundary Aquifers: Challenges and new directions", Paris, 6-8 December 2010. Nacz, Tomasz, (Ed.) (2012). Transboundary Aquifers in the Eastern Borders of the European Union, Regional Cooperation for Effective Management of Water Resources. Berlin: Springer. Dinar, Ariel, Richard E. Howitt, Steve, J. Rassenti, and Vernon L. Smith (1998). Development of Water Markets using Experimental Economics. In: Easter, K. W., Mark Rosegrant, and Ariel Dinar (Eds.) Markets for Water Potential and Performances. Dordecht, The Netherlands: Kluwer Academic Publishers. Botelho, Anabela, Ariel Dinar, Ligia Pinto, and Amnon Rapoport, (2012). Time and Uncertainty in Resource Dilemmas: Equilibrium Solutions and Experimental Results. Water Science and Policy Center, Working Paper 01-0912, http://wspc.ucr.edu/working_papers/WSPC_WP_01_0912_resource%20dilemmas%20equilib rium%20solutions.pdf. Mason, Charles F. and Phillips, O. R. (1997). Mitigating the tragedy of the commons through cooperation: An experimental evaluation. Journal of Environmental Economics and Management, 34(2), 148172. Suter, Jordan F., Joshua M. Duke, Kent D. Messer, and Holly A. Michael, (2012). Behavior in a spatially explicit groundwater resource: evidence from the lab. American J. of Agricultural Economics 94(5): 10941112. Apesteguia, J. 2006. Does Information Matter in the Commons? Experimental Evidence. Journal of Economic Behavior and Organization 60: 5569.