Recursive Sustainability: Intertemporal Efficiency and Equity

PV-optimality in a capital-resource economy can imply decreasing utility over some portion of the time horizon. Various criteria have been proposed to maintain intergenerational equity defined as nondeclining utility, but these have some limitations and problems. This paper proposes a new welfare criteria incorporating present value to maintain efficiency, and an equity function with convex costs on declining utility. This criterion is economically efficient, time-consistent and recursive. An extension of dynamic programming to multiple value functions is developed to solve this problem. Increasing the equity weight increasingly eliminates declining portions of utility time paths. Sustainability implies increasing consumption in the early time periods and some intermediate time periods relative to PV-optimality. A surprising result is that sustainability can actually result in increased resource usage in early time periods, followed later by higher levels of resource stocks compared to PV-optimality. The sustainability analysis shows that while conventional benefit-cost and valuation analysis contribute to efficiency, they do not necessarily induce sustainability due to incorrect dynamic GE prices. Similar comments apply to Green NNP analysis. The concepts and extended DP methods developed in this paper extend naturally to uncertainty and can also be applied to generalized consumer and social choice models beyond those typically considered in the literature.growth, environment, intergenerational equity, dynamic programming, Research Methods/ Statistical Methods,

EXHAUSTIBLE RESOURCE ALLOCATION, INTERGENERATIONAL EQUITY, AND SUSTAINABILITY

An OLG model with exhaustible resources and solar energy is developed, and equilibrium time paths are characterized numerically using recursive methods. For the parameter values considered, resource prices increase over time, and extractions, output, and utility decline over time until a steady-state is reached. Decreasing the intertemporal elasticity of substitution or raising consumers' subjective discount rate hastens exhaustion of the resource stock. Market equilibrium can result in much quicker use of the stock than social optimality under a constant discount rate, with consequent higher utility for early generations and lower utility for future generations in contrast to social optimality.Resource /Energy Economics and Policy,

DYNAMIC REGIONAL ANALYSIS OF THE CALIFORNIA ALFALFA MARKET WITH GOVERNMENT POLICY IMPACTS

Alfalfa's heavy reliance on irrigation water and its role as an alternate to program crops makes it susceptible to changes in government farm policies. This article presents a dynamic spatial equilibrium model of the California alfalfa market. The model is used to forecast alfalfa acreage, prices paid and received, and transportation flows for the short run and the long run under the base year conditions. The base year results then are compared to a situation of changing demand due to reductions in federal water subsidies and the implementation of a cotton acreage-reduction program.Agricultural and Food Policy, Crop Production/Industries,

ECONOMICS OF AGROFORESTRY PRODUCTION IN IRRIGATED AGRICULTURE

A dynamic optimization model for agroforestry management is developed where tree biomass and soil salinity evolve over time in response to harvests and irrigation water quantity and quality. The model is applied to agroforestry production in the San Joaquin Valley of California. Optimal water applications are at first increasing in soil salinity, then decreasing, while the harvest decision is relatively robust to changes in most of the underlying economic and physical parameters. Drainwater reuse for agroforestry production also appears promising: both net reuse volumes and the implied net returns to agroforestry are substantial.Resource /Energy Economics and Policy,

Nitrogen as a Capital Input and Stock Pollutant: A Dynamic Analysis of Corn Production and Nitrogen Leaching under Non-Uniform Irrigation

A spatially dynamic programming model of nonuniform irrigation is developed to investigate the nitrogen leaching problem associated with irrigated agriculture. We evaluate the importance of temporal and spatial elements in (i) appropriately modeling the interseasonal corn production problem with nitrogen carry-over and leaching under non-uniform irrigation, and (ii) in adequately evaluating alternative policy instruments for pollution control. Comparisons of the time profiles under spatially variable nitrogen levels arising from nonuniform irrigation are provided along with an evaluation of three different price-based policy instruments for reducing nitrogen leaching.Environmental Economics and Policy,

Ground Water Quantity and Quality Management: Agricultural Production and Aquifer Salinization over Long Time Scales

An economic model of ground water salinization is developed. Starting from a full, high-quality aquifer, there is an initial extraction period, an intermediate waste disposal period, and a final drainage period. Drainage management is initially source control and reuse, but eventually culminates in evaporation basins and a system steady-state. This process occurs over long time scales but is consistent with historical observation. Efficiency is qualitatively similar to common property though quantitative magnitudes differ substantially. Regulatory pricing instruments are developed to support the efficient allocation. The system is not sustainable in that net returns generally decline through time until the steady-state.common property, dynamic programming, efficiency, ground water, irrigation, salinity, sustainability, Resource /Energy Economics and Policy,

A Stochastic-Dynamic Model of Costly Reversible Technology Adoption

We develop a stochastic-dynamic model of technology adoption that imposes fewer restrictions on behavior than do previous studies of similar decision problems. Like these previous studies, our model is forward-looking and can be used to demonstrate the additional "hurdle rate" that must be met before adoption will take place when the future state of the world is uncertain. Unlike these previous studies, our approach does not impose the untenable assumptions that investment in a new technology is irreversible or that technologies have unlimited useful lifetimes. Rather, we address the more reasonable situation of costly reversibility and limited lifetimes. Our solution method utilizes Bellman's equation and standard dynamic programming techniques. Similar methods have been used previously to examine irreversible investment and adoption problems, but to our knowledge no application to costly reversible adoption has yet to appear in the literature. Our behavioral simulations, calibrated for irrigated cotton farming in California's San Joaquin Valley, demonstrate that the more restrictive approach can produce significant model prediction errors and can overlook important features of the adoption problem when decisions are reversible and technologies eventually become obsolete. Policy implications are discussed.dynamic optimization, irrigation, reversible, technology adoption, water, Research and Development/Tech Change/Emerging Technologies,

REGIONAL DRAINWATER MANAGEMENT: SOURCE CONTROL, AGROFORESTRY, AND EVAPORATION PONDS

Source control is one way to address salinity and drainage problems in irrigated agriculture, and reuse of drainage flows on salt-tolerant crops or trees in agroforestry production is another. A regional model of agricultural production with drainwater reuse and disposal is developed. Deep percolation flows are controlled through choice of crop areas, irrigation systems, and applied-water quantities. Crop drainwater may by reused in agroforestry production, and residual emissions are disposed of in an evaporation pond. A significant role for both source control and reuse is found. Sensitivity to various cost and revenue parameters is also analyzed.Resource /Energy Economics and Policy,

AJAE Appendix: Spatial Dynamics of Water and Nitrogen Management in Irrigated Agriculture

The material contained herein is supplementary to the Article named in the title and published in the American Journal of Agricultural Economics, forthcoming.Crop Production/Industries, Farm Management,

Evaluation of Pavement Markings on Low-Volume Rural Roadways in Iowa

Many rural roadways in Iowa have centerline and/or edgeline pavement markings. The current Manual on Uniform Traffic Control Devices (MUTCD), however, requires centerline and/or edgeline pavement markings only along streets and roadways with traffic volumes much greater than 400 vehicles per day (the volume-based definition of a low-volume roadway in the MUTCD). This project was initiated to gather and summarize information about the state of practice related to the installation and maintenance of pavement markings along low-volume rural roadways in Iowa. Additional information was also collected to provide more guidance in the pavement-marking decision-making process. The tasks completed include an examination and summary of past research, the collection of legal input related to the use of pavement markings in Iowa, and a survey of Iowa county engineers that focused on their current pavement-marking practices. A basic safety benefit-cost evaluation of pavementmarking applications was also performed. Overall, the literature on the effectiveness of pavement markings and their safety impacts is limited. A number of studies have been completed with varying levels of robustness and reliability in their results. The Highway Safety Manual includes crash modification factors for the installation of centerline markings that it indicates should be used with caution, and one for the installation of edgeline and centerline markings that equates to a 24 percent total serious and minor-injury crash reduction. A more recent study from Louisiana also found a 15 percent reduction in total crashes after the addition of edgelines. The legal input acquired as part of this project was generally common knowledge. It indicated that once a traffic control device has been installed, the jurisdiction must properly and adequately maintain it. The survey completed found that, of the great majority of the respondents (97 percent), painted centerline/no passing zones and edgelines on at least some of their paved low-volume rural roadways. A much smaller percentage took this approach, or just painted centerlines/no passing zones, along their seal-coated roadways. The basic cost-benefit evaluation found that the percentage of crash reduction needed from pavement markings to make them beneficial was very low (i.e., 5.1 percent, at most). Overall, it was concluded that pavement markings are widely used in Iowa along low-volume paved roadways and sometimes seal-coated roadways. In addition, there is a safety benefit to the installation of pavement markings. but the research into that impact is limited, particularly along low-volume roadways. It is recommended that further analysis be completed on potential pavement-marking safety impacts, that a pavement-marking database be developed, and that a committee be initiated to help develop policies related to pavement-marking removal