Valuing Groundwater Recharge in an Urban Context

Abstract

<i>Urbanization often creates waterrelated externalities such as increased flooding and decreased groundwater recharge. Decreased recharge can lead to the diminution of potentially valuable groundwater. Groundwater’s ability to buffer water-supply shocks may be a substantial component of the value of groundwater stock. I argue that in urban contexts, autoregressive rather than i.i.d. stochastic processes are a better characterization of water supply processes. Data for the Los Angeles area suggests that an autoregressive process is a better approximation of water supply processes than alternative processes and produces economically and statistically significantly different estimates of buffer and groundwater stock values.</i> (JEL Q25, Q32)