Supplementary Exercises > Environmental Public Goods

Aquifer use and spring flow

San Antonio is currently being sued by the Sierra Club and other groups for pumping too much water out of the Edwards aquifer. The Sierra Club argues that San Antonio's use of the aquifer leaves too little water in it to support several natural springs that are home to various endangered species. This question asks you to think about that problem a bit. Suppose you were given the following facts:

Please answer the following questions:

  1. Find the efficient allocation of water between San Antonio (Qd) and the springs (Qs).
  2. Suppose the water is allocated by a market. How much will end up coming out of the springs? Explain as thoroughly as you can why the situation turns out this way. Be sure to discuss any key aspects of the problem. Why does the market get this wrong?
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Peter J Wilcoxen, The Maxwell School, Syracuse University
Revised 04/07/2006