1 Introduction
2 Special Features of Water
2.1 Water as an Economic Good and a Natural Resource
2.2 Rivalry/Non-rivalry and Excludability/Non-excludability
-
Water is a private good if it is both rivalrous and excludable;
-
Water is a public good if it is both non-rivalrous, and non-excludable (or if exclusion costs are very high);
-
Water is a common-pool resource (or open access resource) if it is rivalrous but non-excludable (or if exclusion costs are very high);
-
Water is a club good if it is non-rivalrous (at least to some extent), but excludable.
2.3 Causes of Water Scarcity and Water Pollution
3 An Economic Framework for Water Quantity and Quality Management
3.1 Theoretical Background
3.2 Economic Models for Water
3.2.1 Rivalrous Water as an Input to Economic Activities
3.2.2 Non-rivalrous Water Quality as a Public Good
4 An Illustration for Seasonal Water Management in a Numerical Example
4.1 Specification of the Welfare Program
4.2 Solution to the Model and Policy Implications
Variables and parameters | Units | Values |
---|---|---|
Exogenous variables | ||
Capital \( \bar{K} \)
| k€ | 50 |
Labour \( \bar{L} \)
| k-hours | 100 |
Water volume in the high season ω
H
| km3
| 600 |
Water volume in the low season ω
L
| km3
| 150 |
Water for ecological requirement \( \underline W \)
| km3
| 50 |
Threshold concentration of pollutants \( \bar{c} \)
| mg/m3
| 50 |
Given parameters | ||
Utility functions | ||
Water quantity share in high season ρ
H
| 0.2 | |
Water quantity share in low season ρ
L
| 0.25 | |
Water quantity share σ | 0.1 | |
Consumption share of agricultural goods ζ | 0.4 | |
Production functions | ||
Substitution elasticity for agricultural goods σ1
| 0.85 | |
Substitution elasticity for industrial goods σ2
| 0.5 | |
Cost share of water quality for agricultural goods δ | 0.05 | |
Emission coefficient for agricultural production c1
| 100 kg/unit | 25 |
Emission coefficient for industrial production c2
| 100 kg/unit | 10 |
Reserving water | ||
Capital parameter for reserving water c
k
| €/m3
| 0.02 |
Labour parameter for reserving water c
l
| hours/m3
| 0.02 |
High season | Low season | Yearly | |
---|---|---|---|
Water quantity (km3) | |||
Agricultural producer W
1
| 11 | 11 |
22
|
Industrial producer W
2
| 41 | 41 |
82
|
Consumer x
wH
, x
wL
|
263
|
283
| 546 |
Total water use | 315 | 335 | 650 |
Ecological requirement \( \underline W \)
|
50
|
50
| 100 |
Reserved water W
R
|
235
| -235 | 0 |
Endowment ω
H
and ω
L
|
600
|
150
| 750 |
Water quality g
|
164
|
121
| |
Emissions (100 kg) | |||
Agricultural producer e
1
| 27 | 27 |
54
|
Industrial producer e
2
| 82 | 82 |
164
|
Total emissions e | 109 | 109 |
218
|
Factors | |||
Capital (k€) | |||
Agricultural producer K
1
| 14 | 14 |
28
|
Industrial producer K
2
| 8.5 | 8.5 |
17
|
Reserving water K
R
| 5 |
5
| |
Total capital use | 27.5 | 22.5 | 50 |
Labour (k- hours) | |||
Agricultural producer L
1
| 33 | 33 |
66
|
Industrial producer L
2
| 14.5 | 14.5 |
29
|
Reserving water L
R
| 5 |
5
| |
Total labour use | 52.5 | 47.5 | 100 |
High season | Low season | Low-high ratio | |
---|---|---|---|
Water quantity price | 0.131 | 0.185 | 1.41 |
Water quality price | 0.132 | 0.199 | 1.51 |
Emissions price | 0.094 | 0.094 | 1.00 |
Capital price | 2.774 | 2.774 | 1.00 |
Labour price | 1.000 | 1.000 | 1.00 |
Agricultural goods price | 74.133 | 74.133 | 1.00 |
Industrial goods price | 6.464 | 6.464 | 1.00 |