H. Stuart Burness

PLANNING VERSUS COMPETITIVE RATES OF GROUNDWATER PUMPING

Groundwater pumping from a common property aquifer leads to pumping cost externalities which imply a divergence between competitive and socially optimal rates of groundwater pumping. Gisser and Sanchez (1980) show in a specific context that this qualitative distinction is quantitatively negligible. However, this result seems to defy the common consensus that in many aquifers, depletion will occur prematurely. Given these observations, serious questions arise concerning the role and scope of water management policy. We further explore this issue under alternative hydrologic/economic hypotheses and note scenarios under which divergence of competitive and socially optimal rates of water pumping is significant. We find that divergence increases with demand growth, declining well yields, and low social discount rates. The role and scope of policy are then inferred.

The role for policy in common pool groundwater use

We consider a model of intertemporal common pool groundwater use with substitutable irrigation technology and declining yields from groundwater stocks where pumping cost/stock externalities arise from the usual common property problem. We contrast competitive and optimal allocations and examine the role of substitutable irrigation capital vis-a-vis the effectuation of efficient methods as well as levels of resource use. A case study involving groundwater use in New Mexico illustrates the procedures and considers the efficacy of some simple policy options regarding the amelioration of inefficiencies.

Water Law, Water Transfers, and Economic Efficiency: The Colorado River

The Colorado River illustrates that inefficient water allocation in the form of restricted transfer rights can give a false impression of water shortages. Transfer obstructions at the Federal, interstate, and intrastate levels include the prior-appropriation doctrine and return-flow externalities. Water allocation can be made more efficient by introducing competitive markets and reducing the amount allotted to agriculture. This would provide incentives to improve irrigation practices and free up as much as 10% of Colorado River water for other uses. 32 references. (DCK)

Peak-Load Pricing with Continuous and Interdependent Demand

Issues concerning time-of-use (TOU) pricing with continuous and interdependent demand are examined in a context where increasing marginal costs of production, as opposed to capacity constraints, provide the major incentive for flattening the load curve. The analysis develops the underlying consumer preferences sufficient to insure a continuously varying load curve and generalizes previous considerations of the peak load pricing problem by simultaneously considering continuous and interdependent demand in determining optimal prices and pricing period lengths. A profit incentive for TOU pricing as a form of price discrimination is revealed, which is tempered as substitution across pricing periods allows limited intertemporal arbitrage. The profit incentive leads a price-regulated firm, ceteris paribus, to choose a peak pricing period longer than the social optimum.

Economic aspects of appropriative water rights

Abstract In the and portion of the western U.S., economic development has been affected by the doctrine of appropriative water rights. This paper considers the efficiency aspects of the appropriative doctrine for the case of a stochastic and uncontrolled river, then, subsequently, extends the analysis to the case where the presence of an upstream storage facility provides some degree of flexibility in determining releases. Lastly, the effects of institutions which limit the degree of river use and the implicit release policies attendant are considered.

Optimal depreciation, payments to capital, and natural monopoly regulation

This paper examines optimal recovery of capital costs by the profit- maximizing firm operating under a rate-of-return constraint and for the regulators problem of welfare maximization such that revenues are sufficient to cover economic costs. In this regard, we examine optimal depreciation schedules and time horizons for recovery, as well as the effects of stationary and nonstationary demand and cost conditions and a profit tax on the recovery paths. For the regulated firm seeking profits, once recovery begins, it continues at the most rapid rate until full recovery of costs occurs. In terms of the welfare objective, the regulator is required to commit to full recovery over a finite time period. For both the profit and welfare objectives, the optimal recovery requires “backloading” under a broad set of conditions (recovery increases through time, a practice that is contrary to extant rules).

The Informational Role of the EPA SO2 Permit Auction

We consider the ex ante informational implications of the mandatory surrender feature of a stylized emission permit auction, similar to that in the U.S. EPA SO2 permit scheme, but modeled as a uniform price auction. The theory suggests that generally the auction gives misleading signals concerning the expected price of permits in the post-auction permit market; in the cases where the permit auction is designed to correctly predict the post-auction permit market equilibrium price, the permit auction preempts the permit market, and all trading occurs in the auction. Ex post auction/market experience suggests that the market may have enabled the auction and consequently raises the possibility that the market may have worked in spite of the auction and not because of it.

The Effects of Global Warming on the Mining Industry: Issues, Tradeoffs & Options

&Global warming has become one of the primary topics of environmental concern in recent years. The source of this concern arises from confusion and uncertainty over exactly what global warming entails, where and to what degree it will occur, what the implications of global warming are in terms of physical effect, climate change, weather patterns, and the resultant economic and environmental changes. Predictions and forecasts of these physical effects of global warming are certainly not lacking. However, in spite of the apparent consensus of the general circulation models, there are still many who question the results of the models on the basis of incomplete scientific information and analysis. We do not intend to enter this debate, but, rather wish to draw inferences from it concerning the actual and/or possible economic implications of global warming, particularly for the mining sector. The concerns of the mining sector regarding potential global warming are often implicit if not explicit. These concerns arise in part due to an imprecise understanding of the implications of global warming by the mining community. Anticipating what is to come, it is important to note the distinction between the causes and effects of global warming. In this regard it appears that