Sustainability
Volume 6, Issue 9 (September 2014), Pages 5512-
http://www.mdpi.com/2071-1050/6/8

Social Investment for Sustainability of Groundwater: A Revealed Preference Approach
by Edna Tusak Loehman
Sustainability 2014, 6(9), 5598-5638; doi:10.3390/su6095598
Received: 4 March 2014; in revised form: 23 July 2014 / Accepted: 31 July 2014 / Published: 27 August 2014
Abstract:
Groundwater is a form of natural capital that is valued for the goods it provides, including ecosystem health, water quality, and water consumption. Degradation of groundwater could be alleviated through social investment such as for water reuse and desalination to reduce the need for withdrawals from groundwater. This paper develops a participatory planning process—based on combining revealed preference with economic optimization—to choose a desired future for sustaining groundwater. Generation of potential groundwater futures is based on an optimal control model with investment and withdrawal from groundwater as control variables. In this model, groundwater stock and aquatic health are included as inter-temporal public goods. The social discount rate expressing time preference—an important parameter that drives optimization—is revealed through the participatory planning process. To implement the chosen future, a new method of inter-temporal pricing is presented to finance investment and supply costs. Furthermore, it is shown that the desired social outcome could be achieved by a form of privatization in which the pricing method, the appropriate discount rate, and the planning period are contractually specified.