Eep101-23water - EEP 101/ECON 125 EEP Water Karina...

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Unformatted text preview: EEP 101/ECON 125 EEP Water Karina Schoengold Karina David Zilberman David Renan Goetz Population trends and water Population Global world population have grown from 1Billion people in 1800 to 2.5 Billion in1950 to 6 Billion in 2000 to ? 11 Billion ? 17 Billion ? 6 Billion in 2100 With population growth came Increase in water use per Capita Increase Dimensions of water Dimensions Source -surface vs. ground Strategic decision Supply expansion Demand management Quality control Allocation system -queuing vs. markets Consumptive Use Non consumptive use Environmental Hydro Recreational Agricultural-major use Industrial Municipal Dimesion of heterogeneity Dimesion Many Do Not Have Access to Water Many Region Percent of total population without access to water without in 1994 in Absolute number of people without without access to water to (in millions) 381 Africa Africa Latin America and the Caribbean Asia & the Pacific Asia Western Asia Western Total 20 54 20 97 627 12 26 10 1,115 California Leading Crops Heterogeneity of value Commodity 1988 Value ($000) Harvested Acreage (000 acres) Share of US Production (percent) Water Application Rate (AF per acre) Value from Water Applied ($ per AF) Rice Hay, alfalfa, other Beans, dry Cotton Sugar beets Wheat Walnuts Prunes, dried Almonds, shelled Processing tomatoes Grapes, all Oranges, all Potatoes Pistachios Broccoli Avocados Peaches, all Cauliflower Lemons Lettuce Fresh tomatoes Carrots Apples Strawberries TOTAL 197,583 817,614 104,473 1,026,633 178,080 164,860 190,962 113,925 600,075 385,669 1,356,250 458,446 143,673 104,340 265,954 205,200 177,880 161,514 171,436 632,424 264,075 247,366 117,750 388,998 9,457,649 420 1,680 150 1,337 212 519 174 77 407 226 654 172 47 44 101 75 54 48 49 160 38 51 23 18 7,745 18.5 6.8 15.0 18.3 21.4 2.4 100.0 100.0 99.9 88.4 91.6 26.0 4.8 100.0 90.9 86.1 58.7 79.2 82.3 73.0 25.0 65.1 6.9 73.9 7.8 4.8 3.5 3.4 3.6 1.2 2.8 3.2 3.0 3.2 3.3 3.2 3.6 2.8 2.8 2.8 3.2 2.8 2.8 2.6 4.0 2.6 2.5 2.9 60 102 199 229 235 263 396 462 493 534 636 843 851 853 940 980 1,023 1,202 1,252 1,517 1,761 1,874 2,048 7,621 20% of water produces 80% of value 120% 100% 80% 60% 40% 45¡ line 20% 0% 0% 20% Cumulative Value 40% 60% 80% 100% 120% Cumulative Water Use Comparison of Performance of Alternative Irrigation Technologies Technology Long furrow Short furrow Sprinkler Drip Irrigation efficiency 0.6 0.7 0.8 0.95 Fixed cost 500 517 548 633 Capital Costs of Irrigation Projects Vary Significantly Vary Heterogeneity and conflict Heterogeneity Some countries (Canada) are water richOther (Jordan) are water poor -but even Canada has deserts -but Diversity Provides opportunity to trade Diversity Diversity of interest- drought prevention vs. flood control Conflicts about irrigated agriculture In dry regions Agricultural may use up to 80% of In waterwater Environment and urban sector are expanding their Environment demand demand Benefits of irrigation Benefits Irrigation allowed us to overcome population Irrigation growth growth Irrigated land has increased from 50 mha (million Irrigated hectares) in 1900 to 267 mha today. Between 1962 and 1996 the irrigated area in developing countries increased at 2% annually. developing The 17% irrigated land is producing 40% of global The food food The value of output of irrigated cropland is about The $625/ha/year ($95/ha/year for rain-fed cropland and $17.50/ha/year for rangelands). $17.50/ha/year The high productivity of agriculture slowed The expansion of deforestation. expansion Perception water supply crisis crisis Water consumption in 2000 is 4-5 times Water as in 1950 as Most the “obvious” sources for Most diversion are used diversion We will need more water to We accommodate more people accommodate There is appreciation for environmental There services of water services The capital costs of water projects have been underestimated. A recent study of 81 dams found that the average cost overrun was 56% the Environmental cost - lose of habitat Increase of water and land salinity More bad news More Soil Salinity reduce productivity of 20% of Soil irrigated land 1.5 million hectares of these lands are deserted annually lands Water logging Costs 11Billion annually Ground water depletion Ground 8% of India’s food produced with depleted aquifers aquifers In 1973 3% of India's groundwater pumped below 10 In Social Concerns Concerns Water born diseases kill 4-5 million annually 40 – 80 million people has been displaced 1950-99. 40 Displacement International conflicts and water supply. International Sustainability and management management .There is a perception of water supply crisis,but .There we have a water management crisis. managemen Improved policies and incentives can address Improved policies water supply and quality concern and lead to sustainability sustainability Sustainability- Environmental quality levels and natural resource resource stocks are above target levels Causes & Solutions of water situation water Water institution respond to scarcity and Water political economy political We will argue that changes in conditions We requires institutional transition requires Economics is crucial in transition design,yet it Economics has been under used has Heterogeneity is essential feature of water Heterogeneity system and should be integrated in analytical framework framework Factor affecting the emergence of water Institutions of Water institutions are affected by Water Scarcity Government ability to tax and finance projects Policy objectives-growth vs. environmental quality Policy Water abundance + Financially weak government+ Desire for growth lead to Water Desire Water appropriation) appropriation rights (prior prior Water abundance + Financial resources availability+ Desire for growth lead to Public supply projects The emergence of water Institutions II Institutions Water scarcity Water leads to leads water trading water Privatization of supplies Environmental concerns lead to Water quality regulations + Environmental purchasing funds funds Equity concerns leads to regulated leads pricing+subsidies pricing+subsidies Financial crunch leads to leads The Tricky Transitions The Biggest challenge to economists to understand Biggest and design transitions and Introduce trading Environmental quality regulations Change water project design and finance Change mechanisms mechanisms Population and income growth-leading to scarcity Changing attitude about the environment Changes in governance and government finance New institutions (world bank) Causes of transitions Transitions are not alike Transitions Timing, History,Transaction cost , Political economy and preferences affect transitions Transition may be gradual-the transition towards water Transition trading in most locations takes years Yet Crises trigger transitions Depletion of ground water leads to surface water projects San Fernando valley flood led to building dams upstream Long Draughts lead to migrations (American Indians), storage (Joseph and Pharaoh) Systems are rigid - a threshold have to be crossed (Dixi Pyndick) to overcome political economy constraints Pyndick) (Rausser Zussman) and transition costs (Shah &Zilberman) to introduce change &Zilberman) Economics based approach to water management reform water We will present incentives and policies to We improve: improve: Water project design Water Water pricing allocation and conveyance Micro level choices Water quality I.Improved water projects design Rely on social benefit cost analysis Rely Consider projects with positive expected NPV &resources should be valued by their societal value Capital subsides and under-costing the environment lead to oversized projects oversized Learning is crucial-delay is worth while-invest when it is Learning -delay optimal not at first moment when NPV is positive optimal Project design should include nonstructural solutionsbring the economists and biologists to the design process Consider future costs water logging cost and drainage Benefit cost analysis and project design and Water projects make fortunes and political careers-”too Water importance to leave to economics”. Some yield high returns importance Budgetary constrains led to economic scrutiny in U.S.Principle&Guidelines constrained new construction P&G has problems P&G Economics used to select among projects not for design Under emphasis on non structural solutions Contingent valuation used only for benefits assessment Environmental projects are frequently exempted from P&G, as Environmental quantification of benefit is hard, leading to over investment. Cost per unit of amenity should be used to gauge value. Cost Need more ex post studies on return from projects. Need Beyond benefit cost analysis Beyond Projects assessment should not only decide to build or Projects (if B>C) but also when to do it, MAX B(t)-C(t). to Adaptive learning (AL):Allow flexibility to resolve Adaptive uncertainty about preferences or technologies uncertainty Arrow Fisher-AL& irreversibility leads to delay of Arrow irreversibility development Increasing return to scale &costly reversibility may lead to over-development and restoration Incentives(water price) may be used to reduce project size Incentives(water or delay its start. For unique and new problems-Investment in appropriate R&D may lead to smaller investment in project R&D Projects should be apart of a multi tool strategy. Projects Trade,desalinization and water projects water Chronically low food prices reflect tendency to Chronically agricultural oversupplyagricultural Real food prices should be used in Real evaluation Water use choices should consider gains from trade and “relative advantage” from Desalinization and reuse of reclaimed projects Desalinization can expand supply-and reduce value of new development development II.Improve water allocation and pricing and The price of water is elusive The actual prices of water (whenever they The exist) tend to be different from efficient pricing exist) Both actual and efficient prices vary depending Both on on Time (within season and between season) Location Quality Use Institutions Regional Allocation issues Regional Water pricing Fixed cost considerations Allocation over space Water right and trading Ground water pricing Conjunctive use of surface and ground water II. Envir onment Supplier 2 Supplier 1 Conveyance Supplier 3 Water Market I. Buyers Figure 1 presents a stylized water trading system. Elements of the economics of water systems of Benefits (Marginal benefits=demand) Private cost extraction Conveyance cost Externality cost Future value of water inventory P R I C E MPC+MCC+MEC +MFC MPC+MCC+MEC A MC+MCC B M MPC N(subsidized} Quanitity Optimal Vs subsidized water - water is over used and under paid Optimal pricing P = MPC + MCC + MEC + MFC Price= Price= Marginal extraction cost+ Marginal conveyance cost+ Marginal environmental cost+ Marginal storage cost Implication of optimal pricing in Ag pricing Subsidies are not accidental, removal is Subsidies painful painful Optimal pricing will reduce water use resulting in: Adoption of conservation technologies Transition to cities-lower prices in cities Reduction in acreage of low value crops More environmental benefits Less water projects constriction over time More stable systems Pricing under small provider Pricing Provider ignores environmental costs and dynamic pricing-oversupplies Need for intervention to prevent over provision Extra water tax to account for environment & storage Regulatory limit on amount consumed with tradable permits Buy back of water for environmental purposes P = MPC + MCC The fixed cost challenge The When marginal cost of water are increasing When significantly the can cover fixed cost- and are efficient and workable efficient Price Profits Marginal cost Water Unfortunately marginal costs are low and Unfortunately marginal cost pricing can not cover fixed costs marginal Current failures of water systems Current Current pricing systems aimed at cost recovery Current not efficiency not Recovery of operation and maintenance costs Recovery ranges from a low of 20-30 percent in India and Pakistan to a high of close to 75 percent in Madagascar Madagascar The most common pricing systems are peracre fees. Subsidies of +50% are common acre Combinations aimed for efficiency and solvency efficiency Per acre cost + marginal costs Hook up cost +marginal costs (in municipalities) Per acre fee + tiered pricing (Deals with equity) The more applications of water are “allowed The “(the more trading is permitted): the more efficient the system is and the higher is the likelihood of solvency under marginal cost pricing marginal Ignoring distance: Uniform pricing Rent with price adjusted for conveyance lose Under use loss Rent with uniform pricing Over use loss Distance from source Uniform pricing leads to inefficiency-over use of water and over production of low value crop when water is expensive Basics of conveyance Water is allocated over space. Let βε α λοα χ τιον ινδχατορανδ ιτ ασσ εσ ι , υµ ι ϖα εσ φροµ 0 το Ι . Τ ηε λ τιον ο ισ τη σ υρχε οφτηε ωατερ. Ασ ωατερ ισ µοϖινγ σ µ ε λυ οχα εο ο αρελ τ ανδ τηε ιρρ γατιον λ ατ λ τιον οσ ι οσσ οχα χον ϖεψα χε ν ΧΙ ι ι ισ α φυν χτιον οφ ινϖε τµ εντ ιν σ .Τ ηε λ σ φ χτιον ισ ο σ υν λ ( ΧΙ ι ) . ι Τ ηε τοτα ωατε ρεαχ ιν γ λ τιον λ ρ η οχα Ζ ι ισ Ζ ι ανδ ιτ εθυατιον οφ µ οτιον ισ σ = Ζ ι − 1 (1 − λ ( ΧΙ ι )) − Ξ ι ωηερ ε Ξ ι ισ τη αµουντ οφω α ερ ε αχεδ ατ λοχτιον . ε τ ξτρ τ α ι ι Γ ι Α υνιτ οφωατερ εξτρ τεδ ατ λοχτιον οριγιν τεδ ιν αχ α α ρ φλχτινγ α τρ νσ εε α ιτιονφροµγροσ το ν τ. σ ε υνιτσ οφ ατ ρ ω ε, Ρι = (1 − λ(ΧΙ1 )(1 − λ (ΧΙ2 )(1 − λ (ΧΙ3 ).........(1 − λ(ΧΙι ) ισ τηε φραχτιον οφ ονε υνιτ 1 2 3 ι ωατερ ρελεασεδ ατ τηε σουρχε αρριϖινγ ατι λοχατιον . Γ ι = 1 / Ρι Π 0 Π. ι = τηε πριχε οφ ονε υνιτ οφ ωατερ ατ τηε σου ρχε = τηε πριχε οφ ονε υνιτ οφ ωατερ ατ λοχατιον ι ς = τηε πριχε οφ ωηεελινγ ονε υνιτ οφ ωατερ ονε υνιτ οφ δισ Τηε οπτιµαλ πριχε ιφ ωατερ ατ λοχατιον ρεφλεχτ τηε χονϖεψ ι µυστ σσεσ ανδ ωηεελινγ χοστ, ΠΓ ι + ς Π= 0 ι ∑1Γ ϕ−1 Ρ ϕ ϕ = ι Τηε οπτιµαλ βεηαϖιορ ισ οβταινεδ βψ µαξιµιζατιον οφ χονσ νδ προδυχερ συρπλυσεσ, γιϖεν τηε ωατερ φλοω εθυατιον.. ηεν ∆ −1 (Ξι ) ισ ινϖερσε δεµανδ ατ λοχατιον πριχε εθυατιον ιµπλιεσ ι ,τηε ωατερ αλλοχατιον οϖερ σπαχει) = ∆ ( Ξ0 )Γ ι + ς ∆ (Ξ −1 −1 ∑ Γ ϕ−1Ρ ϕ ϕ1 = ι Improved Conveyance & water allocation Improved Poor management of irrigation systems leads Poor to conveyance losses of up to 50 percent to One avenue to improve efficiency of water is One through improved canals but that may requires institutional reform institutional Canals are public goods. Private users tend to Canals under investment in canal maintenance under A water utility determines simultaneously water optimal water pricing and investment in conveyance conveyance Canals as public goods Canals Individuals close to the source who receive their Individuals water with basic conveyance has no incentive to improve canals improve Downstream users with insufficient water depend on Downstream conveyance activities of upstream users Individual will invest in improved conveyance as long Individual as the marginal benefits to their operations exceeds the marginal cost- they ignore producers down the line the Result - water use is inefficient shorter canals than optimal over-application of water upstream over-application Improve conveyance improve the well being of downstream Improve farmers who tend to be poorer farmers Optimal allocation in conveyance Optimal The socially optimal allocation will allocate resources The at a given location to the point where marginal cost of improved conveyance is equal to the marginal benefit improved of improved conveyance at the specific location and of the rest of the canal the MC (conveyance at i) =MB at I +sum of MB down the MC line line Establishing optimal allocation requires collective Establishing action. -a water user association invests in conveyance to maximize net social benefit of water use of Spatial impacts of optimal conveyance Spatial Water use basic conveyance Water use improved conveyance Distance from source Optimal conveyance policy will •increase utilized acreage and water use in agriculture •Charge downstream farmer higher water prices which will lead to conservation •Empirical simulation find that optimal conveyance loss to be negligible Water rights systems Water Water is allocated according to water right systems Water that are queuing system based on location or seniority seniority Prior appropriation allocates water according to Use it or loss it First in use first in First Water use permits operate as queuing systems Water as well as Trading is restricted with other rights systems Reform :A transition to trading where water is Reform Transition from queuing to market market priced according to opportunity cost It require transaction and transition cost Gain from trade increase with scarcity Gain Trading is desirable when gain > transaction Trading cost cost Trading lead to conservation of water among Trading sellers sellers The gains/loses from trade The Trading may be introduced in crisis situations-requires Trading monitoring, expanded canal system monitoring, Trading may be small but critical to adjust to shortages Trading Trading may have negative third party effect-less Trading runoff to environment & groundwater replenishment runoff Reform allows new entrants to markets-new crop Grapes in Chile Golf courses (high value farming) Purchases for environmental purposes water trading design issues water Should permanent sales be allowed? Or should the Should trade be in rights (water rent) rights? trade Who will sell- the state or historical owners? What about Export outside the basin? Should the sales be of of effective or applied water? Applied water Effective water Field Residue go to Third parties Emerging arrangements Emerging Transferable rights-annual sales of water is -annual easy-permanents sales of rights is facing constraints constraints annual upper bound on exported volume annual from a region from Only 70-85% of applied water can be sold-to Only compensate third parties compensate Other trading design considerations considerations Compensation to third party Options to buy/sell-to allow the use of water Options in drought. in Frequency of delivery-having water when Frequency needed needed Exchange among right owners/ Sale Exchange by government by Active vs. passive trading vs. tiered pricing vs. Active trading-exchange between buyers with -exchange a coordinating clearing house Passive trading -all parties sell or buy from districts districts Tiered pricing- a minimum amount is sold at minimum low price-above it marginal cost pricing (one version) version) Tiered pricing is good for municipalities Passive trading fits for trade within districts Active market is good for trade between Active districts Markets and conservation Markets Transition to markets will lead to conservation if Transition farmers will have the incentive to adopt conservation and save water that will be sold conservation Conservation occurs if Value of water saved + change in yield> cost of conservation Sometimes markets will reduce conservationSometimes reduce as they will provide new source of water as making conservation expensive making Pricing and information Pricing Pricing is perfected with volumetric monitoring Pricing should change by time and sometimes Pricing by crop and location to reflect by conveyance cost environmental side effects Without volumetric measurement-Per acre fees Without may vary by season / crop. may Prices should reflect costs of side effects of Prices water - use of greener/cleaner application technologies should be rewarded technologies Improve ground water management management India increased pumping by 300% since 1951India 86 Farmers should pay user fee( to reflect future Farmers user to scarcity)scarcity) Fuel for irrigation should not be subsidized. Elimination of fuel subsidies and user fee will Elimination raise ground water pumping-leading to reduced acreage and conservation acreage Tiered pricing may address equity issues Monitoring of pumping is needed-may need Monitoring regional ground water authorities. regional Conjunctive use of surface and ground water and Precipitation is random-reliance on rainfall or surface water(river flow) lead to instability surface The marginal value of water varies across The season- high at dry seasons seasonLow at wet season Gain from storage Ground water can serve storage facility Water in ground has value that depends on Variability of supply Stock in ground Stock Reflection-reform will increase ag water prices Ag can survive with higher pricingbut it will have to changesReform requires Reliable information-facts not guesses Good economics Effective administrators Sophisticated legal understanding Excellent political skill&leadership Patience III. Efficiency of irrigation technologies technologies Water use efficiency of gravitational Water technology is.2-.8 depending on soil conditions conditions Sprinkler increases efficiency to.5-.8 Drip may reach .95 Modern technologies are more expensive They are likely to be adopted on sandy soil They steep hills and when water or output prices are high are Diversity of water productivity productivity Flowers generate $20-40K of revenues per Flowers acre acre Strawberries $12-20K of revenues per acre Citrus $2-3K of revenues per acre Cotton $200-400 of revenues per acre Cotton Rice $40-100 of revenues per acre Rice Reduced micro-level water use nefficiencies use Farmer selection of crops and irrigation technologies Farmer affect water use. affect Technologies( Drip,precision) increase water use Technologies( efficiency but require higher per acre cost efficiency There is 6% adoption of sprinkler and 1% adoption of There drip. Gains are greater at sandy soils or steep hills Low pricing of water is not justifying adoption Efficient pricing of water and drainage will lead to Efficient adoption adoption Subsidization of technology adoption may be justified Heterogeneity of pricing II Heterogeneity Increases scarcity leads to increased monitoring Increases allowing more refined pricing allowing Irrigation residues should be priced positively (run Irrigation off to neighbor) or negatively (water logging) off Costs of externalities should be included in water Costs price price Pricing may vary by technology or activity if Pricing technologies entail different environmental costs. California provides examples of water California mismanagement and water reform mismanagement Common Theme Common Research and learning learning We operate with much ignorance- need to learn We and adapt and Water policy requires constant leaning of both Water natural phenomena and human learning natural With GIS and new information tools we can With improve policy design improve Crucial - is policy maker education and Crucial interdisciplinary dialogue Specifics cases Specifics Economics principle for policy reform are Economics valuable, but their application is subject to objections objections Case studies and other lessons of the past may Case illuminate factor affecting reform in water policy illuminate Lessons of California Response to 1988-92 Draught to Water storage matters. The storage facilities enabled California to survive the 3 early years of the drought with minimal impacts or changes, and the later years with mild effects. Multiple Responses to Reduced Water Supply. 1/3 from ground water pumping, 1/3 from conservation (adoption of drip etc), 1/3 from land fallow. More lessons More Conservation makes a difference.. After 1992, more than 50% of tree crops in the state used drip, sprinkler in cotton and alfalfa exceeded 40% in major areas. Trading was introduced through water bank California Water Trading institutions California Water Trading institutions The water bank­bought water in north sold it in south Sustains perennial crops ­allows their expansion provides water rights owners higher incomes. The operation of the bank is optional only during draught years. Options sold annually Cal water institutions Cal The electronic water Market in the central valley “Electronic matchmaking” of buyers and sellers Districts facilitates trades­gradually installs volumetric pressurized system Disclosure of prices is optional Purchasing fund for environmental water The value of water to fluctuate, may vary from $5 to $200 / AF. Current situation Current Without a draught emphasis is on water quality The water trading is at low volume-as scarcity is low Challenge to environmentalists to utilize water Challenge effectively effectively Restoration of fisheries is a major emphasis Desire to modify infra structure for conservation and Desire efficiency-engineering companies gone green efficiencyConflict between pressure to modify and invest in Conflict infrastructure and and budgetary constraints-the old conflicts between economists and engineers conflicts The market will rise in the next draught Climate change will really change the system Animal waste management reform reform Background animal waste major environmental concern Industrializion and contracting in animal farming Industrializion Runoff contamination of north Carolina beaches Hypoxia in Gulf of Mexico and Potomac Ban of new swine facilities in NC Proposal for shared liability in contract situations (integrators Proposal should pay for some of the damages,internalize costs ) should Upgrade of farming operation to reduce pollution is Upgrade subsidized as part of EQIP - political economy matters subsidized Crisis triggers reforms Common theme Heterogeneity of Common pricing pricing All aspects of water system are reflected in water pricing pricin There is nothing like the price of water in California or There any other place. any The price of water depends on when & where &how it is being used, and its quality Uniform pricing ignoring conveyance cost leads to spati misallocation and sometimes less water use and misallocation production, as its Marginal benefits declines. production, Conclusions I Conclusions Water resources management reform can increase Water economic and environmental benefits Irrigation crucial to food production-some systems are not sustainable because of over pumping not There is much potential to increase water productivity There through incentives through A priority is to increase trading within regions and to priority improve maintenance-through institutional changes improve Irrigation technologies and improvement in varieties Irrigation are another sources of improved water productivity in agriculture. agriculture. Conclusions II Conclusions Water development needs will population growth population Development proposals should be scrutinized by social-cost benefit tests Pollution pays will be used to reduce pollution Consumer pays should be used to control) Public pay for conservation and public good Public activities activities Monitoring and knowledge make policy effective Political will is crucial to utilize new knowledge Political be determined by VI. Incentive for water &environmental quality Incentive Introduce fee for quality-when measurable Introduce Polluter pay principle -make pollution control worth while Zero pollution is frequently sub optimal-use tradable Zero permits in emission-to reach target permits Information is crucial-effective policy requires Information monitoring and valuation of environment monitoring When actual emission is unobservable-tax according When to activities.Organic pay less than chemical farming Minimize use of direct control-allow flexibility Use carrot - payments for environmental services Information and water quality policies policies Notation Y -output X- water Q-land quality E- pollution control Z-pollution T-technology (discrete choice) T-technology L-location D =Pollution damage Y =f(X,.T,Q) Z =g(X,T,E,Q) D=Z*h(L) pollution damage vary across location Information and pricing of quality-2 quality-2 If If h(L) is constant a uniform pollution tax (or subsidy) based on observing or estimating Z is optimal. In this case tradable permits can work optimal. When h(L) varies -pollution price varies by When location, tradable permits are difficult to implement . Heterogeneity of damage reduces effectiveness of pricing effectiveness Information and pricing of quality-3 quality-3 Assume h(L) is constant a uniform pollution tax (or subsidy) Assume based observing pollution Z is optimal. When z is unobservable but if X,Q,E,and T are observable and When f and g are known a tax on input varies by location and technology will yield optimal solution technology If Z and X are unobservable but Y,Q,E,and T are a output tax If dependent on location and quality will yield first best outcome dependent If Z,X,and Y are unknown - a tax based on technology and If location will be optimal but inferior to full information trax but will be second best be If aggregate pollution is known- it is a good start for regulation Environmental services Environmental Environmental services are public good Environmental -underprovided by private sector -underprovided Environmental purchasing fund buy water to Environmental protect environment-may be private and tax exempted or public like the CRP. exempted Desired targeting criteria is to purchase Desired resources with highest value of benefits per dollars spent. dollars Most fund purchase land rights,in U.S fund buy Most water to protect wetland in California and Pyramid lake in Nevada. Pyramid Monitoring is crucial for effective fund activities Monitoring Stock Pollution Stock Water quality problems may be the result of waste Water accumulation-this is the case with salinity and drainage drainage In this case optimal policy is designed within a In dynamic framework dynamic The social shadow price of pollution is changing, The mostly growing till a steady state, is reached. mostly Higher water quality cost overtime will lead to gradual Higher adoption of clean technologies adoption Failure to address stock accumulation may result in Failure economic and ecological decline-ala Aral sea. economic Stochastic pollution Stochastic Flooding may cause sever pollution run off problemsdestruction of fisheries by toxic materials Control requires structural intervention and Control modification of water use and production activities to reduce the likelihood and magnitude of damage reduce Optimal policies may entail pricing of risk enhancing Optimal activities and subsidies of risk reducing activities activities Modification of economic activities to reduce risk of Modification flooding is a form of environmental services that has to be recognized ...
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This note was uploaded on 03/18/2010 for the course ECON C125 taught by Professor Zelberman during the Spring '09 term at Berkeley.

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