Efficient management of groundwater resource systems requires careful consideration of relationships — both positive and negative — with the surrounding environment. The removal of and protection against “bad” and “ugly” natural capital such as invasive plants and feral animals and the enhancement of “good” capital (e.g. protective fencing) are often viewed as distinct management problems. Yet environmental linkages to a common groundwater resource suggest that watershed management decisions should be informed by an integrated framework. We develop such a framework and derive principles that govern optimal investment in the management of two types of natural capital — those that increase recharge and those that decrease recharge — as well as groundwater extraction itself. Depending on the initial conditions of the system and the characteristics of each type of natural capital, it may make sense to remove bad capital exclusively, enhance good capital exclusively, or invest in both activities simultaneously until their marginal benefits are equal.
Published version: Burnett, K., Roumasset, J., Wada, C.A., 2015. The Good, Bad, and Ugly of Watershed Management. In: Burnett, K., Howitt, R., Roumasset, J.A., Wada, C.A. (Eds.), Routledge Handbook of Water Economics and Institutions, pp. 100-110, Oxford and New York: Routledge.