Conference Agenda

In this paper, we investigate optimal regulation to manage a groundwater extraction problem. Specifically, we analyse the dynamic interaction between a set of farmers and a water agency within a leader–follower differential game played à la Stackelberg. We assume that the water agency, acting as the leader, selects two policy instruments, a water tax and a (non-tradable) water threshold, to control groundwater withdrawals and preserve the aquifer. In particular, we consider that farmers are asked to pay a tax proportional to their individual withdrawals and an additional charge when the extraction level exceeds the water threshold. Farmers, as followers, determine their optimal extraction levels given the water agency’s policy. We compare scenarios in which the regulator controls both the tax and the threshold with more restrictive cases where the regulator can only set one of the two, and we examine the implications for social welfare, farmers’ profits, and groundwater preservation. Our results show that the joint use of a linear–progressive tax scheme strictly dominates linear taxation in terms of aquifer preservation and social welfare whenever the progressive regime is feasible. Moreover, among constrained policy regimes, allowing feedback adjustment of the water threshold performs close to the fully flexible benchmark and outperforms the case in which only the tax can be adjusted.

In a changing climate, water scarcity has emerged as a major constraint on agricultural production worldwide, threatening the livelihoods of billions of people. Without effective institutions to coordinate individual use of shared water resources, this may exacerbate existing food security challenges and intensify resource use conflicts. Using a randomized lab-in-the-field experiment, we examine how financial compensation and joint water governance institutions affect cooperation and water extraction in an upstream–downstream irrigation game. We find that compensation alone does not increase cooperation. However, the combination of compensation and joint local water governance strengthens cooperation, enhances earnings from water extraction for both upstream and downstream users, and promotes more equitable water allocation. Adding enforcement mechanisms to compensation and local governance also strengthens cooperation. These results suggest that financial incentives (compensation) alone are insufficient to promote cooperation in watershed and irrigation management, whereas combining compensation with effective local water governance systems significantly enhances farmers’ cooperation and improves equity in irrigation water distribution.

Climate change is increasing inland flood risk, yet little is known about the economic returns to large-scale adaptation investments. We provide the first national-scale causal evaluation of the Dutch Room for the River program, Europe's largest integrated flood-risk adaptation initiative, using more than 78,000 repeat-sale housing transactions. The program combines grey and nature-based projects and is characterized by long, staggered implementation horizons. Exploiting spatial and temporal variation across projects, we identify housing market responses to project announcement, construction, and completion. We find that announcing Room for the River projects increases property values by 1.9%, while construction activity induces short-run price declines of 2.7%. Upon completion, housing values rise by 2.3%, with capitalization effects reaching up to 15\% four years later. Post-completion effects are strongest in urban areas and among older housing stock, and vary systematically with flood risk exposure. Distinguishing between adaptation types, nature-based measures generate large but highly localized premiums, whereas grey interventions produce smaller yet more spatially diffuse effects. Aggregated capitalization benefits of €4-8 billion imply benefit-cost ratios between 1.1 and 2.3, indicating that integrated flood-risk adaptation delivers substantial welfare gains.