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Abstract

Conserving the watershed can help to preserve the groundwater supplies by avoiding loss of recharge. Preventing overuse of available water through pricing reforms can also substantially increase benefits from groundwater stock. Since efficiency prices are generally higher than the inefficient, status quo prices, efficiency pricing may be politically infeasible and watershed conservation may be considered as an alternative. Using Pearl Harbor water district as an example, we find that pricing reform yields large welfare improvement (about $900 million) and is welfare-superior to watershed conservation unless the latter prevents over 10% loss of recharge. In addition, watershed conservation is more valuable at efficiency pricing than at the status quo prices.

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