I recently attended the World Water Congress in Cancun, Mexico where I was part of a special session titled: Charges vs. buyback: who pays for water ecosystems restoration?
Economic instruments cannot operate in isolation. We ask: what policy (mix) yields a (re)allocation of resources that maximizes welfare? This special session explores the characteristics of these instruments, their applicability in different contexts, and their transferability to the rest of the world. The speakers will debate: the necessary policy sequencing required when implementing instruments; provide real world contexts in their application; and highlight the potential pitfalls in their adoption. Expected outcomes from this session include: closer links to other researchers and policy‐makers interested in this topic for future collaboration and project work. We also anticipate gaining useful insights into specific issues or case studies that could be included in this work as we seek funding and other support around topics related to this discussion.
The special session included:
This session gave us a chance to promote the recent Water Economics and Policy paper (discussed here) and a chance to build on that publication. Overall the session was a lot of fun, at least for the presenters.
My slides are attached below and I plan on writing up the paper shortly.
This is another article that is now online. It won't become an open access document at this stage. I think its my best work to date, and hopefully it can clear up some issues associated with how state-contingent approach works and how annual and perennial decision makers respond to drought.
The article builds from my PhD by firstly introducing the demand response to a given supply of water and then builds this into demand responses for water in alternative states of nature, to explain how the price of water can transition from elastic to inelastic.
The article then develops a game against nature where there are two announcements concerning the water allocated during a drought state of nature and illustrates alternative risk profiles for irrigators when allocation is unknown. By introducing a maintenance volume (i.e. a minimum quantity of water to keep the crop alive) the paper then explains how water is a state-general input for perennial producers and a state-allocable inputs input for annual producers. This subsequently explains why perennial producers are willing to spend above the long-run choke price for water in order to preserve capital expenditure.
When uncertainty (i.e. water supply) determines the quantity of water supplied (and demanded) by alternative irrigators (perennial versus annual), we can reclassify state-general demands as 'risk increasing inputs' and state-allocable as risk reducing inputs of production.
Well the DECRA publications are starting to emerge online and the first one off the rank is building on the collaborative efforts that started last year. The new publication is
Gomez, C. M., Pérez-Blanco, D., Adamson, D., and Loch, A. (In Press). "Managing Water Scarcity at a River Basin Scale with Economic Instruments." Water Economics and Policy 0(0): 1750004. (here)
It will become an open access document.
This paper presents a conceptual framework for both assessing the role of economic instruments, and reshaping them in order to enhance their contribution to the goals of managing water scarcity. Water management problems stem from the mismatch between a multitude of individual decisions, on the one hand, and the current and projected status of water resources on the other. Economics can provide valuable incentives that drive individual decisions, and can design efficient instruments to address water governance problems in a context of conflicting interests and relevant transaction costs. Yet, instruments such as water pricing or trading are mostly based on general principles of welfare economics that are not readily applicable to assets as complex as water. A flaw in welfare economic approaches lies in the presumption that economic instruments may be good or bad on their own (e.g., finding the “right” price). This vision changes radically when we focus on the problem, instead of the instrument. In this paper, we examine how economic instruments to achieve welfare-enhancing water resource outcomes can realize their full potential in basin-scale management contexts. We follow a political economy perspective that views conflicts between public and private interest as the main instrumental challenge of water management. Our analysis allows us to better understand the critical importance of economic instruments for reconciling individual actions towards collective ambitions of water efficiency, equity and sustainability with lessons for later-adopting jurisdictions. Rather than providing panaceas, the successful design and implementation of economic instruments as key river basin management arrangements involves high transaction costs, wide institutional changes and collective action at different levels.
Keywords: Economic instruments; river basin management; political economy; water policy
Read More: http://www.worldscientific.com/doi/abs/10.1142/S2382624X17500047