Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/282371 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10683
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Land subsidence threatens the living conditions of roughly 1.2 billion people worldwide in deltaic regions characterized by soft top soil. Economic activity in deltaic regions requires lowering the groundwater levels to keep the land sufficiently dry to maintain productivity, which, however, leaves future generations worse off by accelerating subsidence and increasing future costs. The current policymaking is often myopic by ignoring this intertemporal trade-off. This paper provides a model recognizing this trade-off: we integrate the dynamics of land subsidence and groundwater management to derive optimal paths for controlling the groundwater level. Applying our model to the paradigm case of Dutch agricultural peatlands, we find that the welfare costs of ignoring dynamic efficiency can be in the order of 10 percent of the land value. Our results support current proposals to slow down subsidence by increasing the groundwater levels even in the absence of its social benefits such as avoided carbon dioxide emissions.
Subjects: 
land subsidence
agricultural production
intertemporal trade-offs
water management
optimal control
JEL: 
C61
Q15
Q24
Q25
Q50
Document Type: 
Working Paper
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