Lecture_8 - NR Econ Lecture 8 Todays topic Module III:...

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Unformatted text preview: NR Econ Lecture 8 Todays topic Module III: Water Use Model 2: Market Allocation of Water Empirical Application: Colorado River Water Allocation Module III: Water Use Western United States (arid region of U.S.) Problems in the Economics of Water Allocation (1) Markets not used to allocate water (2) Underpricing through administered prices (3) (Consequently) Inefficient allocation and use of water Example Agriculture: marginal value = $50/acre-foot Urban: marginal value = $250/acre-foot What are the potential gains from trade ? Model 2: Market Allocation of Water Framework: Allocative efficiencywhat is the efficient allocation of water within a river basin? Context: 15 million acre-feet of water for use within the Colorado River basin of the southwestern United States. What is the efficient allocation of that water among states and sectors of the basin? Market Allocation of Water (cont.) Three questions to pose in our analysis (1) What is the efficient allocation among sectors and states (a normative question)? (2) How is water allocated currently within the basin? (3) Will a competitive market in water give water users the incentive to move from the current allocation to the efficient allocation? Current Allocation of the Colorado River Colorado River Compact Upper Basin States Lower Basin States Colorado 3.9 maf Arizona 2.8 maf Utah 1.7 maf California 4.4 maf Wyoming 1.2 maf Nevada 0.3 maf New Mexico 0.7 maf U.S.-Mexico Treaty United States: 15 maf Mexico: 1.5 maf (1) What is the efficient allocation...
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Lecture_8 - NR Econ Lecture 8 Todays topic Module III:...

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