Emergence of social norms in the cap-and-trade policy: An agent-based groundwater market

Abstract

Cap-and-trade policy is generally considered an effective instrument in groundwater markets since it can facilitate environmental protection and sustainable groundwater use. While this policy is implemented in several aquifers all over the world, there is a limited understanding of its social impacts, like how compliance and noncompliance behaviors may emerge. This study presents an agent-based groundwater model to evaluate the effects of monitoring and enforcement levels on farmers' social behaviors, namely boldness and vengefulness. The social, economic, and hydrologic impacts of implementing the cap-and-trade policy in the Rafsanjan Plain, located in Iran, are assessed. To this end, the groundwater market model is evaluated under different monitoring and enforcement scenarios. Results show that the efficacy of the cap-and-trade policy in groundwater markets substantially depends on the monitoring level and enforcement power. The appropriate monitoring and enforcement settings can lead to the emergence of a social norm that is enough to discourage violation and can bring about a functioning market in which the farmers can be better off economically, and the annual drawdown can become less severe. Furthermore, water buyback programs can increase market competition, compliance level, and farmers' profits. This study specifically demonstrates that as a result of the implementation of the cap-and-trade policy, social norms emerge that affect the whole system, from farmer agents to the efficacy of the policy. While this study concentrated on the application of the cap-and-trade policy in groundwater management, the results can provide a foundation for specifying frameworks of the cap-and-trade policy for managing other limited resources or greenhouse gasses emission.