Edna T. Loehman

Further down the road to sustainable environmental flows: funding, management activities and governance for six western US states

This article examines the voluntary approach to environmental flow management in six western states of the United States. These states use the legal system for water allocation known as prior appropriation which allows market transfers of water rights or leases to beneficial uses, here for instream flows. Funding sources are required to provide for market transfers to e-flows (environmental flows), and the present study indicates the inadequacy of support. This article also explores management activities by states and non-governmental organizations as well as considers the meaning of governance for instream flows.

Alternative Measures of Benefit for Nonmarket Goods Which are Substitutes or Complements for Market Goods

Nonmarket goods include quality aspects of market goods and public goods which may be substitutes or complements for private goods. Traditional methods of measuring benefits of exogenous changes in nonmarket goods are based on Marshallian demand: change in spending on market goods or change in consumer surplus. More recently, willingness to pay and accept have been used as welfare measures. This paper defines the relationships among alternative measures of welfare for perfect substitutes, imperfect substitutes, and complements. Examples are given to demonstrate how to obtain exact measures from systems of market good demand equations.Thanks also to the very helpful anonymous reviewers for Social Choice and Welfare.

Free-Rider Effects in Rent-Seeking Groups Competing for Public Goods

This paper studies individual behavior within a group when there is rent-seeking and groups compete in the selection of a public good — a variant of the traditional public goods problem. The situation is different from traditional public goods because an individual may not receive no reward for contribution to the group if the group does not win. Based on theory, the optimal contribution varies strategically depending on the characteristics of the situation, individual risk preferences, income, and subjective probability of winning.Individual contributions or bids toward a group objective were tested experimentally. Results showed that use of a demand revealing mechanism did not produce a significant difference in individual contributions to group efforts when the level of reward was low and when rewards were indirect. However, the demand revealing mechanism caused a significant difference in bids when rewards were high and direct, thus indicating free-riding behavior.

Alleviating soil erosion/pollution stock externalities: alternative roles for government

Abstract This paper addresses two temporal externalities due to agriculture: soil erosion and related pollution. The possibility of decentralization of decisions, the appropriate role of a resource manager, and the efficiency of alternative policies are examined using traditional welfare economics concepts for a two-sector model of rural–urban linkage. Three alternative types of policies can be socially efficient, but imply different involvement by government, and have different knowledge requirements. A Pigouvian policy requires full information. A bargaining solution involves government only in setting an entitlement, but it may require too much knowledge by rural households in terms of understanding dynamic environmental relationships. A third way is that government and rural households be co-producers of environmental goods. This concept assigns government the responsibility for maintaining knowledge about environmental relationships, and government is a participant in a market system that determines prices for environmental-related goods.

Groundwater Management in a Cross Boundary Case: Application to Israel and the Palestinian Authority

To achieve temporal economic efficiency for groundwater in a geographic region such as the West Bank, we propose a management system that is a combination of a nonprofit regional utility with a representative governing body. Water prices would be determined by the utility to balance supply and demand and meet specific groundwater use limits. Revenue from water pricing would provide funds for investments to expand supply through water recycling and new technologies such as desalination. The desired levels of investment and security would be determined by a representative body of water users who would express willingness to pay for these public goods. Simulation modeling indicates that water prices could fall over time as investment and groundwater storage increase. While a water market could improve spatial allocation, it would not necessarily address sustainability or provide for investment.

Cost-Sharing For Pollution Abatement

This paper presents a method of ameliorating externality problems when polluters and sufferers would like to take a cooperative approach, sharing costs of abatement and jointly deciding expenditure for abatement and environmental goals. The method for solving this joint problem uses decentralized messages among the involved participants concerning willingness to pay and proposals about environmental quality. The iterative process starts from exogenously specified cost shares that are then adjusted through personalized prices (which can be taxes or subsidies). The process arrives at equilibrium through price adjustment rules. The equilibrium of the process satisfies social efficiency by design. A simulated example shows that the method can solve a complex problem in a relatively few iterations.

Economic Principles of Risk Management in Production

Risk management in a production context refers to strategic choice of input and output mix (“self insurance”) when production is risky. Production risk may be due to price risk (when market prices are not known at the time input decisions must be made) and/or due to the “state of nature” (e.g. weather risk or machine breakdown risk). Decisions made regarding production affect the level of its riskiness.

Measuring Benefits for Air Quality from Survey Data

The purpose of this paper is to discuss how to model benefits for changes in air quality based on economic theory. Two different willingness to pay responses are studied - willingness to pay to avoid loss of air quality and willingness to pay to obtain improvements in air quality. Observations of willingness to pay were obtained from a survey; survey results were used to develop and compare models for these two types of responses. Differences in the estimated response functions indicate that preferences regarding gains and losses may be generated by different preference models, i.e. obtaining gains may be a “luxury” whereas avoiding losses may be a “necessity.