Agricultural shallow groundwater extraction can result in desiccation of ne
ighbouring nature reserves and degradation of groundwater quality in the Ne
therlands, whereas both externalities are often not considered when agricul
tural groundwater extraction patterns are being determined. A model is deve
loped to study socially optimal agricultural shallow groundwater extraction
patterns. It becomes clear that the current price of groundwater is ineffi
cient and provides fewer incentives for the adoption of modern irrigation t
echnology than does a system that considers the cost of desiccation and gro
undwater contamination in the price of groundwater. The study shows that in
cluding the impact of groundwater extraction on groundwater quality into a
resource management model is particularly significant if the recharge of gr
oundwater is large compared with stock size. (C) 2001 Elsevier Science B.V.
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