A Deterministic Smart Market Model for Groundwater
John F. Raffensperger, Mark W. Milke, E. Grant Read
Operations Research · 2009 · Volume 57 · Issue 6
Abstract
Efficient management of water requires balancing environmental needs, externality considerations, and economic efficiency. Toward that end, this paper presents a deterministic linear program that could be used to operate a smart spot market for groundwater. The market design uses the existing hydrological programs MODFLOW and GWM along with standard linear programming methods. In principle, a market could be set up anywhere that a MODFLOW model is available. The market design has parallels to markets in the electricity and gas sectors, which we discuss. We present a case study with notional bids for Marlborough, New Zealand. Our approach would reduce transaction costs for a water market, reduce users' risk, and increase the reliability of environmental flows. We discuss a number of cautions and limitations to the model and recommend further work on introducing a stochastic framework to the model.
Keywords
games/group decisions, bidding/auctions, environment, natural resources, water resources
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