Farhed A. Shah

Technology Adoption in the Presence of an Exhaustible Resource: The Case of Groundwater Extraction

In this paper we integrate technology diffusion within Hotellings exhaustible resource model. The modern technology is a conservation technology such as drip irrigation used with groundwater. Resource quality heterogeneity and rising water prices are responsible for the gradual adoption of the modern technology, and under reasonable conditions the diffusion curve is an S-shaped function of time. Without intervention, the diffusion process will be slower than is socially optimal, and optimal resource use tax will accelerate the diffusion of the conservation technology and slow down excessive resource depletion caused by market failure due to open access conditions.

Efficient Management of Water in Agriculture

In this chapter the authors argue that the major problem in water resources around the world is water management rather than water availability. We identify several sources of distortion and several avenues to increase the productivities of water. First, subsidization of water or energy available for irrigation leads to underinvestment in modern irrigation technologies. These technologies could increase the water use efficiency of plants and result in lower levels of deep percolation, and runoff. Second, underinvestment in conveyance capital leads to loss of water resources and underproduction. Third, using a water rights regime that bars trading in water leads to underinvestment in modern technology and under utilization of resources. The chapter offers efficient solutions to this problem using price mechanisms and introducing markets.

Optimal combination of pollution prevention and abatement policies: The case of agricultural drainage

The adoption of pollution prevention and abatement practices is examined in the context of a model of exhaustible resource use with a backstop technology. For the sake of concreteness, the paper focuses on the problem of water-logging caused by the subsurface accumulation of agricultural drainwater. In modelling this problem, a regions underground capacity to store drainwater is considered an exhaustible resource, while the installation of subsurface drainage is viewed as the corresponding backstop technology (or abatement practice). The exhaustible resource is typically over-exploited due to common access problems, which forces a suboptimally fast adoption of the abatement practice. Conservationist irrigation technologies, such as drip and sprinkler systems, tend to reduce drainwater generation, and their adoption could increase social welfare by delaying the abatement stage. Public policies are suggested to increase the adoption of such conservationist technologies. Data from California is used to illustrate the results and to demonstrate the efficacy of the model for policy purposes. While the setting used for the analysis in this paper is quite specific (i.e., water-logging), the same general modelling ideas may be applied to many other problems of environmental degradation.

The Economic Value of Delaying Adaptation to Sea-Level Rise: An Application to Coastal Properties in Connecticut

The magnitude and frequency of coastal storms are expected to increase with rising global sea levels, which necessitates evaluating coastal flood adaptation measures. This study examines an important issue in the context of coastal flood protection, namely, the decision when to adopt protection measures. For any given coastal region, our benefit-cost framework allows us to determine the optimal timing of initiating protection that maximizes expected net benefits. We present an application of this framework to a coastal area in Connecticut. Our results suggest that the optimal timing of adopting protection may vary across different census blocks within the study area. We find that using a relatively low discount rate in the benefit-cost analysis implies greater heterogeneity in the timing decisions and earlier overall adoption, whereas, with higher discount rates, the timing decisions are reduced to a choice between early protection and no protection at all. If possible negative environmental and aesthetic impacts of sea barriers are taken into account, delaying protection would become more desirable, with the extent of delay being sensitive to the relative magnitude of one-time costs (e.g., loss of ocean view and recreational opportunities) vs. continuous costs (e.g., shoreline erosion and loss of wetlands).

Amenity Benefits and Public Policy: An Application to the Connecticut Dairy Sector

This article develops a conceptual framework for analyzing the role of state-level policies towards the dairy sector in the presence of farmland amenity benefits, and applies it to Connecticut. Milk supply, demand and amenity benefit functions are estimated, and three exogenously determined milk prices are considered. The empirical findings show, under each price scenario, the extent to which land is underallocated to the dairy sector if amenity benefits are ignored. Analysis of policy options reveals that a partial production cost subsidy represents the least-cost alternative for attaining the socially optimal solution for the region.

Upstream water resource management to address downstream pollution concerns: A policy framework with application to the Nakdong River basin in South Korea

An empirical framework for assisting with water quality management is proposed that relies on open-source hydrologic data. Such data are measured periodically at fixed water stations and commonly available in time-series form. To fully exploit the data, we suggest that observations from multiple stations should be combined into a single long-panel data set, and an econometric model developed to estimate upstream management effects on downstream water quality. Selection of the models functional form and explanatory variables would be informed by rating curves, and idiosyncrasies across and within stations handled in an error term by testing contemporary correlation, serial correlation, and heteroskedasticity. Our proposed approach is illustrated with an application to the Nakdong River basin in South Korea. Three alternative policies to achieve downstream BOD level targets are evaluated: upstream water treatment, greater dam discharge, and development of a new water source. Upstream water treatment directly cuts off incoming pollutants, thereby presenting the smallest variation in its downstream effects on BOD levels. Treatment is advantageous when reliability of water quality is a primary concern. Dam discharge is a flexible tool, and may be used strategically during a low-flow season. We consider development of a new water corridor from an extant dam as our third policy option. This turns out to be the most cost-effective way for securing lower BOD levels in the downstream target city. Even though we consider a relatively simple watershed to illustrate the usefulness of our approach, it can be adapted easily to analyze more complex upstream-downstream issues.

On the Natural and Economic Difficulties to Fulfilling the Human Right to Water Within a Neoclassical Economics Framework

We present a neoclassical economic model of the human right to water using a nonrenewable resource model inclusive of a backstop technology. The right is interpreted as a minimum consumption requirement the government is obligated to fulfill in the event that any one household cannot do so independently. Differing by income levels, households maximize utility by purchasing a composite consumption good and water from two distinct, government-owned sources. Facing physical and financial constraints, the government uses fiscal policy to address potential human rights violations. Reducing the analysis to two periods, we develop a novel approach to compare total welfare levels from a joint human rights and neoclassical economics perspective. We define a human rights welfare standard and discuss cases in which traditional social welfare measures would exceed, violate, or meet this standard. We thus offer a unique way to merge economic analysis with human rights research.

CLIMATE CHANGE AND LAND USE IN SOUTHEASTERN U.S.: DID THE “DUMB FARMER” GET IT WRONG?

The assumption of a fixed amount of land remaining in agriculture regardless of changing climate conditions — one of the features of the “dumb farmer scenario” — is likely to bias the estimated social welfare impacts of climate change. In order to quantify this bias, we employ a demand-supply framework to determine both the amount of land allocated to agricultural and nonagricultural uses as well as the social welfare associated with this allocation choice when no market distortions exist. We present an application of our model to the Southeastern United States and simulate the effects of changing climate conditions on land allocation in the region between 2007 and 2040. We find a very modest welfare bias when maintaining current farmland preservation policies and a more substantial bias if we assume that additional land policies are instituted which have spillover welfare effects in other land-using sectors.