Abstract
Using Da-Cheng Township as an example, this research proposes a subsidy policy that based on the severity of externality from groundwater extraction to mitigate the land subsidence and flood problems associated with the overuse of groundwater by calm farmers in Taiwan.We simulate the required total subsidy expense and the monetary value of avoided flood damages fromalleviating the land subsidence and find that the benefit-cost ratios from our proposed subsidy regulation are all higher than that from the Flood Control Program in the Flood Prone Areas currently adopted by the government. Under certain regulation scenario suggested in our study, the ratio can be as high as 1.15. This implies that if the government wants to use the limited budget more efficiently, it should solve the flood problem from its very beginning.