ISBN-10:
0262034042
ISBN-13:
9780262034043
Pub. Date:
03/18/2016
Publisher:
MIT Press
Water Resource Economics: The Analysis of Scarcity, Policies, and Projects / Edition 2

Water Resource Economics: The Analysis of Scarcity, Policies, and Projects / Edition 2

by Ronald C. Griffin
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Overview

Updated edition of a comprehensive introduction to the economics of water management, with self-contained treatment of all necessary economic concepts.

Economics brings powerful insights to water management, but most water professionals receive limited training in it. The second edition of this text offers a comprehensive development of water resource economics that is accessible to engineers and natural scientists as well as to economists. The goal is to build a practical platform for understanding and performing economic analysis using both theoretical and empirical tools. Familiarity with microeconomics or natural resource economics is helpful, but all the economics needed is presented and developed progressively in the text.

The book focuses on the scarcity of water quantity (rather than on water quality). The author presents the economic theory of resource allocation, recognizing the peculiarities imposed by water, and then goes on to treat a range of subjects including conservation, groundwater depletion, water law, policy analysis, cost–benefit analysis, water marketing, privatization, and demand and supply estimation. Added features of this updated edition include a new chapter on water scarcity risk (with climate change and necessary risk tools introduced progressively) and new risk-attentive material elsewhere in the text; sharper treatment of block rates and pricing doctrine; expanded attention to contemporary literature and issues; and new appendixes on input–output analysis, water footprinting and virtual water, and cost allocation. Each chapter ends with a summary and exercises.

Product Details

ISBN-13: 9780262034043
Publisher: MIT Press
Publication date: 03/18/2016
Series: The MIT Press
Edition description: second edition
Pages: 496
Sales rank: 758,687
Product dimensions: 7.00(w) x 9.10(h) x 1.10(d)
Age Range: 18 Years

About the Author

Ronald C. Griffin is Professor in the Department of Agricultural Economics, Texas A&M University.

Table of Contents

Preface xiii

Acknowledgments xvii

Water Unit Conversions xix

1 Introduction 1

1.1 An Array of Decision Types 2

1.2 Amid the Noise 3

1.3 Supply Enhancement and Demand Management 4

1.4 Future Forces 6

1.5 Economics, Environment, and Equity 8

1.6 Organization and Conventions 10

1.7 Exercises 11

2 Optimal Allocation and Development 13

2.1 Establishing Goals 13

Part I Fundamental Economic Theory 15

2.2 Costs of Water Supply 15

2.3 Efficiency for a Single Water-Using Agent 19

2.4 Aggregation and Acquisition of Marginal Net Benefit Functions 31

2.5 (Aggregate) Economic Efficiency 40

2.6 The Universal Advisory Term: Opportunity Costs 43

Part II Further Adjustments for the Idiosyncrasies of Water 44

2.7 Economic Efficiency in the Presence of Return Flows 44

2.8 Economic Efficiency with Nonrivalness 46

2.9 Neutral Economic Efficiency 49

2.10 Is Water Conservation an Additional Goal? 54

2.11 Summary 55

2.12 Exercises 56

Appendix 2A Constrained Optimization Using the Lagrangian Method 59

3 Efficiency in a Dynamic World 63

Part I The Whys and Whats of Discounting

3.1 Rates of Time Preference 64

3.2 Not Risk, Not Inflation 66

3.3 Market Revelations of the Discount Rate 68

3.4 The Underlying Theory 69

3.5 Time Values of Money 70

3.6 What Is the Social Discount Rate? 72

3.7 Collecting the Advice on Social Discount Rate Selection 78

Part II Applied Discounting 79

3.8 Dynamic Improvement and Dynamic Efficiency 79

3.9 Other Metrics 80

3.10 NPV versus Other Measures 82

3.11 Is Dynamic Efficiency/Improvement Neutral or Aggregate? 84

3.12 Dynamic Efficiency: A Two-Period Graphical Exposition 84

3.13 Dynamic Efficiency: The Basic Calculus 86

3.14 A Fundamental Example: Drawing from a Reservoir 87

3.15 Extendable in Many Possible Directions 90

3.16 How Fast Should Groundwater Be Depleted? 91

3.17 Summary 94

3.18 Exercises 94

Appendix 3A Amortization and Capitalized Value 97

Appendix 3B Advanced Methods of Dynamic Optimization 99

4 Risk and Reliability 101

4.1 Risk, Uncertainty, and Ambiguity 103

4.2 Actions and Instruments 104

4.3 Interpreting Climate Change 106

4.4 Statistical Review 109

4.5 First Steps: Examples That Maximize Expected Net Benefits 114

4.6 Mean-Variance Decision Making 116

4.7 Expected Utility 120

4.8 Aggregation for Social Decisions Involving Water Risk 126

4.9 Quasi-option Value, Real Options, Learning, and Optimal Postponement 128

4.10 Robust Decision Making 131

4.11 Summary 133

4.12 Exercises 134

Appendix 4A Recursive Utility 135

5 Social Institutions 137

Part I The Economics of Institutions 138

5.1 What If You Had to Choose? 138

5.2 The Invisible Hand and the First Theorem of Welfare Economics 143

5.3 Market Failure 145

5.4 Consequently … 151

5.5 The Nature of Property 152

5.6 The Assignment of Property: Who Should Get It? 154

Part II Legal Institutions 157

5.7 Water Law 157

5.8 Surface Water Law 158

5.9 Groundwater Law 168

5.10 Conjunctive Management 174

5.11 Treaties and Compacts 175

5.12 Summary 177

5.13 Exercises 179

6 Policy Analysis 181

6.1 Two Policy Analysis Forms: Theoretical and Empirical 182

6.2 Empirical Policy Analysis: The Ins and Outs of Compensation Tests 183

6.3 Consumer and Producer Surplus Measurement 184

6.4 Price-Rationing Policy 186

6.5 Quantity-Rationing Policy 190

6.6 Demand-Shifting Policy 191

6.7 Supply-Shifting Policy 194

6.8 Overview and Analysis of Other Policy Types 198

6.9 Incorporating ANB into NPV for Dynamic Policies 198

6.10 Secondary Economic Effects 202

6.11 Incommensurables and Intangibles 205

6.12 Summary 208

6.13 Exercises 209

Appendix 6A Input-Output Analysis 211

Appendix 6B Footprinting and Virtual Water 214

7 Cost-Benefit Analysis 217

7.1 Policy Background 219

7.2 Required Economic Analyses in the United States 221

7.3 CBA Is More Than NPV 226

7.4 A Spreadsheet in Need of Entries 227

7.5 Obtaining the Benefits and Costs 229

7.6 An Example Project Analysis: Applewhite Reservoir 232

7.7 Multipurpose Projects 236

7.8 Using Alternative Costs as a Benefit Measure 237

7.9 The Costs of Borrowed Funds 239

7.10 Cost Allocation 240

7.11 Summary 242

7.12 Exercises 243

Appendix 7A The Conduct of Cost Allocation 245

8 Water Marketing 255

8.1 The Instruments of Water Marketing 256

8.2 The Upside: Unlocking the Resource from Low-Valued Applications 259

8.3 Water Trade and Valuation Tools 260

8.4 Transaction Costs 264

8.5 A Typical Exchange Framework 265

8.6 The Downside: Guarding against Market Failures 268

8.7 Can the Downside Be Fixed? 271

8.8 The Worldwide Extent of Marketing 273

8.9 Leading Surface Water Markets 273

8.10 Groundwater Marketing 288

8.11 The Grounds for Area-of-Origin Protectionism 291

8.12 Summary 296

8.13 Exercises 297

9 Water Pricing 301

9.1 The Terms of Pricing 303

9.2 The Customary Objectives of Rate-Setting 311

9.3 The Equity of IBRs Question 314

9.4 Financial Practice 316

9.5 The Economic Theory of Pricing 318

9.6 Seasonal Volumetric Rates 329

9.7 The Influences of Risk 331

9.8 Wastewater Charges: A Complication 333

9.9 Summary 334

9.10 Exercises 336

10 Demand Analysis 339

10.1 Demand Is More Demanding Than Value 340

10.2 The "Requirements" Approach 341

Part I Demand Methodology 342

10.3 Point Expansion 343

10.4 Residual Imputation 345

10.5 Activity Analysis and Math Programming 346

10.6 Production Functions 354

10.7 Direct Statistical Regression 356

10.8 Nonmarket Valuation Techniques 360

Part II Empirical Demand Findings for Three Sectors 367

10.9 When Considering Prior Empirical Studies… 367

10.10 Residential Water Demand 369

10.11 Industrial and Commercial Water Demand 370

10.12 Agricultural Water Demand 372

10.13 Summary 375

10.14 Exercises 376

Appendix 10A Joining Point Expansion and Residual Imputation 377

11 Supply Analysis 381

11.1 The Roles of Supply Information 382

11.2 The Primary Feature of Supply Empiricism: Single Suppliers 383

11.3 The Process of Processing Water 384

11.4 Conceptualizing Costs 385

11.5 Basic Methods of Supply Estimation 387

11.6 Economies of Scale and Scope 394

11.7 The Privatization Question 396

11.8 Summary 404

11.9 Exercises 405

12 Modeling with Demand and Supply 407

12.1 From Theory to Empiricism 408

12.2 Features of More Advanced Models 409

12.3 Economics and Hydroeconomics 411

12.4 A First Model 412

12.5 What Has Been Gained, Really? 414

12.6 The Work of Prior Studies 416

12.7 A Second Model 419

12.8 Summary 424

12.9 Exercises 424

Appendix 12A Converting Functions for Water Type 425

13 The Water Challenge 427

13.1 Economically Inspired Principles 428

13.2 Making a Difference 433

Glossary 435

References 443

Index 471

What People are Saying About This

Bonnie Colby

Griffin has succeeded in producing something rare: an economics textbook that is both comprehensive in its topical coverage and lively enough to engage non-economists! Sound mathematical/graphical treatment of key subjects, yet easy-to-follow prose: this book ought to be required reading not only for students of water resource economics but for public officials and water agency staff worldwide.

Quentin Grafton

An outstanding textbook written by the one of the world's top water economists. For anyone, student or practitioner, who needs to know the fundamentals and also the frontier knowledge necessary to tackle the local, regional, and national challenges of water use and supply, this is an absolute must read.

Steven Renzetti

In an era of growing water scarcity and facing a future of increasingly rancorous conflicts over water resources, there is a compelling need for clear guidance on matters related to water supply, demand, allocation, and investment. This text provides this guidance and has many positive features: comprehensive in coverage, accessible for noneconomists, clearly written, and highly relevant to real-world water issues. I strongly recommend it to all water professionals seeking to gain insights into the economic dimensions of water issues.

Sheila M. Olmstead

The first edition of Griffin's book became an instant classic, useful for teachers and students of economics, and equally accessible to those with technical training outside of economics who focus on the critically important issue of water resource management. This superb update, with its expanded treatment of risk, water pricing, and marketing, ensures that Griffin's book will remain the 'best of the best' in this rapidly growing field.

Richard M. Vogel

This text provides a rigorous conceptual basis for economics while simultaneously enabling students to obtain a solid background in water resource economics in a single course. Griffin uses a minimum of mathematics and economics jargon to explain economic concepts applied to water resource planning problems. His book makes a fundamental contribution to multidisciplinary curricula in water resource engineering, planning, and management, and should be required reading for all students in such programs.

Endorsement

The first edition of Griffin's book became an instant classic, useful for teachers and students of economics, and equally accessible to those with technical training outside of economics who focus on the critically important issue of water resource management. This superb update, with its expanded treatment of risk, water pricing, and marketing, ensures that Griffin's book will remain the 'best of the best' in this rapidly growing field.

Sheila M. Olmstead, Associate Professor of Public Affairs, The University of Texas at Austin

From the Publisher

An outstanding textbook written by the one of the world's top water economists. For anyone, student or practitioner, who needs to know the fundamentals and also the frontier knowledge necessary to tackle the local, regional, and national challenges of water use and supply, this is an absolute must read.

Quentin Grafton , Professor and Chairholder UNESCO Chair in Water Economics and Transboundary Water Governance, The Australian National University

In an era of growing water scarcity and facing a future of increasingly rancorous conflicts over water resources, there is a compelling need for clear guidance on matters related to water supply, demand, allocation, and investment. This text provides this guidance and has many positive features: comprehensive in coverage, accessible for noneconomists, clearly written, and highly relevant to real-world water issues. I strongly recommend it to all water professionals seeking to gain insights into the economic dimensions of water issues.

Steven Renzetti , Professor, Department of Economics, Brock University

The first edition of Griffin's book became an instant classic, useful for teachers and students of economics, and equally accessible to those with technical training outside of economics who focus on the critically important issue of water resource management. This superb update, with its expanded treatment of risk, water pricing, and marketing, ensures that Griffin's book will remain the 'best of the best' in this rapidly growing field.

Sheila M. Olmstead , Associate Professor of Public Affairs, The University of Texas at Austin

Ariel Dinar

What differentiates this book from others on water economics issues is its comprehensive overview of the subject matter, including institutional analysis, various appraoches to water efficiency, and policy analysis, to mention only a few. Griffin is uniquely placed to write such a book, and he eloquently guides the reader through the economic links between scarcity, policies, and projects in a way that accommodates differing levels of comprehension. This book is special, long awaited by economists and water professionals.

David Zilberman

Griffin's wonderful text provides balanced and insightful coverage of the economics and management of water resources. He guides the reader through the fascinating world of water institutions, using economic theory to shed light on private choices, market outcomes, and policy design. The book can be the main text for a intermediate course in water economics or even natural resources. I recommend it strongly.

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