Investigation of Externalities of Groundwater Overexploitation on pistachio market of Iran

This study investigates externality costs of groundwater overexploitation to produce pistachio on pistachio market of Iran. Domestic demand functions، export demands and supply of pistachio with and without externality costs of groundwater overexploitation were estimated for the period 1980-2011. Then، the effects of externality costs on key variables of market and welfare were investigated applying mathematical programming model. The results showed that externality costs of groundwater overexploitation to produce pistachio lead to a shift of the supply curve is upward and to the left. Therefore، the amount of current supply of pistachios without considering externality costs is larger than socially efficient level. On the other hand، the market price is lower than the socially efficient price. Accordingly، with considering externality costs the market price variables increased and the amount of domestic demand، export demands and supply decreased. Finally، with considering total externality costs the consumer and producer welfare، export income and total welfare or social welfare decreased. Certainly considering externality costs prevents groundwater overexploitation and the present value of the benefits of this action will increase in the long run.