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,

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,

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,

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,

INTEGRATED DRAINWATER MANAGEMENT IN IRRIGATED AGRICULTURE

Drainwater management strategies include source control, reuse, treatment, and evaporation ponds; questions of interest are efficient management, policy instruments, and sustainability. A high level of source control is indicated absent reuse due to the relatively high cost of evaporation ponds; this is accomplished largely through high uniformity/high cost irrigation systems. With reuse, the primary form of source control is reduction in land area devoted to freshwater production; the released land goes to reuse production. Reuse appears as an economically promising solution to the drainage problem. A high level of net returns is achieved while maintaining overall hydrologic balance in the system. Economic efficiency and hydrologic balance may be attained through pricing or market schemes. With pricing, growers are charged for deep percolations flows, while reuse and evaporation pond operators are paid for extractions. With markets, permit supply is generated by extractions from the water table, while permit demand is generated by deep percolation. Competitive equilibrium exists, is efficient, and implies hydrologic balance. The analysis suggests that a high level of agricultural production may be possible for some period of time while still maintaining environmental quality.Resource /Energy Economics and Policy,