The Dynamic Reallocation Value: Revisiting the Framework of Computing the Stabilization Value of Groundwater in a Dynamic Context

This paper revisits the theoretical framework of computing the stabilization value of groundwater in a dynamic context. Specifically, we argue that what the existing studies have measured as the augmentation value contains a different type of value, the dynamic reallocation value (DRV), which should be evaluated as an important part of the dynamic stabilization value. We examine the existence of DRV and its underlying behavioural mechanism using a simple two-stage model and then generalise the specification to a dynamic model with an arbitrary number of stages. We find that behind the positive values of DRV, users amplify their reactions against surface water fluctuations and still realize a higher total expected benefit than in the case without uncertainty. Ignoring the existence of DRV may impair the value of groundwater as an essential instrument for climate adaptation.