Optimal extraction of water from a groundwater system with two linked aquifers

With the increase in cost of surface water, groundwater extraction for irrigation has become more competitive. Due to the interdependence of different water resources in a catchment, the management of all water resources should be integrated. An illustrative model is formulated of the dynamic system of two linked aquifers with stochastic recharge, water demand and extraction cost. For each aquifer area, the optimal pumping policy for each state of the overall groundwater system is derived and this policy is applied over a large number of years to derive the expected development over time of extraction and the state of the groundwater system. The implications of the optimal extraction policy for any review of existing allocations and trade arrangements are discussed. Optimal taxes to replace existing allocations are also derived and discusse