The Economics of Water Resource Allocation: Valuation Methods and Policy Implications

In this chapter a ‘watershed economics approach’ that could be applied in Cyprus is proposed which is composed of two important stages. In Stage I economic valuation techniques are used to establish the economic value of the competing demands for surface and groundwater, incorporating where necessary an analysis of water quality. The valuation exercise allows the objective balancing of demands based upon the equi-marginal principle to achieve economic efficiency. In Stage II a policy impact analysis is proposed which addresses issues of social equity and the value of water for environmental/ecological purposes. The analysis is undertaken within the confines of the watershed; the most natural unit for the analysis of water allocation and scarcity since it determines the hydrological links between competing users and thus the impacts of one user upon another. The methodology is encapsulated by a case study of the Kouris watershed in Cyprus

Dynamic adaptation to resource scarcity and backstop availability: theory and application to groundwater

In this paper we analyse the optimal management of a renewable resource (groundwater) with stock-dependent extraction cost and a backstop substitute, facing two-sector linear demands. Application to the Kiti region in Cyprus demonstrates the model’s performance and is used to test for the difference between optimal and myopic behaviour. It is found that the presence of a backstop resource diminishes the importance of optimal dynamic behaviour, whereas in the absence of backstop the optimal control solution yields a value for social welfare significantly larger than the myopic policy.backstop technology, endogenous adaptation, Gisser–Sanchez effect, groundwater resource management, multistage optimal control, Resource /Energy Economics and Policy,

Estimating risk attitudes in conventional and artefactual lab experiments

We elicit and compare risk preferences from student subjects and subjects drawn from the general population, using the multiple price list method devised by Holt and and Laury (2002). We find evidence suggesting that students have lower relative risk aversion than others.Risk aversion, CRRA, expo-power, multiple price list

Estimating risk attitudes in conventional and artefactual lab experiments

We elicit risk preferences from student subjects and subjects drawn from the general population, using the multiple price list method devised by Holt and and Laury (2002). We find that students are less risk averse than general population subjects.Risk aversion, CRRA, expo-power, multiple price list

On Production Function Estimation with Selectivity and Risk Considerations

In the estimation of production functions, ignoring risk considerations can cause inefficient estimates, while biased parameter estimates arise in the presence of sample selection. In the presence of uncertainty and selection bias, the latter introduced by the endogeneity of qualitative characteristics of inputs in crop choice, we show that correcting for risk considerations (a la Just and Pope, 1978, 1979) but not selection bias, can produce incorrect inferences in terms of risk behavior. The arguments raised in this study have estimation and policy implications for stochastic production analysis applied to all goods whose qualitative characteristics can affect sample selection.crop choice, production risk, sample selection, Production Economics,

On the Distribution of Crop Yields: Does the Central Limit Theorem Apply?

In this paper we take issue with the applicability of the central limit theorem (CLT) on aggregate crop yields. We argue that even after correcting for the effects of spatial dependence, systemic heterogeneities and risk factors, aggregation does not necessarily lead to normality. We show that aggregation is also likely to lead to nonnormal distributions, which exhibit both skewness and excess kurtosis. In particular, we consider the case in which the number of summands is not constant but varies with time, which corresponds to the empirically relevant situation where the number of acres used for cultivation of a particular crop exhibits substantial variation over time. In this case, the CLT is not applicable while the limit theorems for random sums of random variables, which apply, predict that the limiting distribution of the sum is not normal and depends on the postulated distribution of the number of summands. Using data from aggregate US states crop yields, we provide empirical support regarding the deviation of aggregate crops yields from normality.

Second Best Environemntal Policies Under Uncertainty

We construct a strategic trade model of an international duopoly, whereby production by exporting frms generates a local pollutant. Governments use environmental policies, i.e., an emissions standard or a tax, to control pollution and for rent shifting purposes. Contrary to their .rm, however, governments are unable to perfectly foresee the actual level of demand, the cost of abatement and the damage caused from pollution. Under these modes of uncertainty we derive su�¢ cient conditions under which the governments optimally choose an emissions tax over an emissions standard.

Assessing the economic viability of alternative water resources in water-scarce regions: Combining economic valuation, cost-benefit analysis and discounting

Aquifer recharge, Treated wastewater, Total economic value, Choice experiment, Long-run cost benefit analysis, Declining discounting,

Tradable Permits vs Ecological Dumping

In this paper we examine an alternative policy scenario, where governments allow polluting Ã??rms to trade permits in a strategic environmental policy model. We demonstrate, among other things, that with no market power in the permits market, governments of the exporting firms do not have an incentive to under-regulate pollution in order to become more competitive. This strategic effect is reversed and leads to a welfare level closer to the cooperative one and strictly higher to that when permits are non-tradable. Allowing for market power in the permits market, the incentive to under-regulate pollution re-appears regardless of whether permits are tradable or not. With tradable permits, however, the incentive to under-regulate pollution is comparatively weaker relative to the case of non-tradable permits. This entails potential benefits for the exporting Ã??rms and countries since the prisonersÃ??dilemma is moderated.Strategic environmental policy, Tradable permits, Race to the top

Output Substitution in Multi-Species Trawl Fisheries: Implications for Quota Setting

In most multi-species fisheries managed through output controls, total allowable catches (TACs) are set primarily on the basis of biological considerations, usually on a species by species basis. An implicit assumption of management is that fishers are able to adjust their product mix in line with these quotas. If this is not the case, then over-quota catch occurs, leading to either illegal landings or discards. In either case, the effectiveness of the TAC in conserving the resource is reduced. In this paper we show that in the case of multi-species fisheries that exhibit jointness in production, setting TACs on an individual species’ basis is inappropriate. In particular, we quantify technical interactions through the estimation of a multi-output distance function for the UK North Sea beam and otter trawl fisheries, and find that in most cases, the potential of substitutability between the main and alternative species is relatively small. We argue that failure to quantify and integrate these technical interactions in the construction of management instruments for fisheries regulation, may result in increased discarding, illegal fishing and potentially lower than expected future yields.Multi-output fishery, Multi-output distance function, Elasticities of substitution, Efficiency