Renewable Resource Management with Alternative Sources: the Case of Multiple Aquifers and a "Backstop" Resource

While renewable resource economics is typically confined to one source and one aggregate demand, resource managers must often decide how to manage multiple sources of a resource simultaneously. In addition, studies of extraction sequencing are typically confined to non-renewable resources. We propose a dynamic optimization model to determine the efficient allocation of groundwater when two coastal aquifers are available for exploitation. We find that Herfindahl’s least-cost-first result for nonrenewable resources does not necessarily apply to renewable resources, even when there is only one demand. Along the optimal trajectory extraction may switch from single to simultaneous use, depending on how the marginal opportunity cost of each resource evolves over time. A numerical simulation for the South Oahu aquifer system, which allows for differentiation of users by elevation and hence distribution costs, illustrates the switching behavior.