7th Conference of the International Water and Resource ...Authors: M. Özgur Kayalica, Sajal Lahiri Presenter: M. Özgur Kayalica 21.00h: Conference Banquet at the restaurant l’Alvareda

7th Conference of the International Waterand Resource Economics Consortium

4th Seminar on Environmental and Resource EconomicsGirona. June 3-5

Program and Abstracts

Supporting institutions

1

PRESENTATION

Dear participant:

The Department of Economics of the University of Girona welcomes you to the 4th

Seminar on Environmental and Resource Economics (SERE) and the 7th Conference of

the International Water and Resource Economics Consortium (IWREC) that will be

held from June 3. - 5., 2001.

Given the success of the previous conferences, we expect the meeting to be a major

event in the environmental economist’ calendar. From our side we will do our best to

make it happen.

The Department of Economics is situated at the Campus of Montilivi, which has been

constructed within the last 10 years. It is located 2 km. outside the city center.

Moreover, we invite you to explore the historic roots of the city of Girona during one of

our social events. We also hope that you will join us for one of the post-conference

tours to get to know the beautiful landscape of the interior or coastal part of Catalonia. I

wish you all the best for your stay and the conference.

Yours sincerely,

Marc Saez Zafra

Chair of the Department of Economics of the University of Girona

Girona, june 3rd, 2001

2

Program Committee (7th Conference of the IWREC)

Ujjayant Chakravorty (Emory University, USA) (Co-Chairman)Renan-Ulrich Goetz (Universitat de Girona) (Co-Chairman)Alberto Garrido (Universidad Politécnica de Madrid)Doug Parker (University of Maryland, USA)Santiago Rubio (Universitat de València)Marc Saez (Universitat de Girona)Yacov Tsur (Hebrew University of Jerusalem, Israel)David Zilberman (University of California at Berkeley, USA)

Program Committee(4th Seminar on Environmental and ResourceEconomics,Girona)

Modest Fluvià (Universitat de Girona) (Co-Chairman)Joan Ribas-Tur (Universitat de Girona) (Co-Chairman)Josep Calbò (Universitat de Girona)Montserrat Colldeforns (Generalitat de Catalunya, Departament de Medi Ambient)Carmen Gallastegui (Universidad del País Vasco)Pere Riera (Universitat Autònoma de Barcelona)Miquel Rigola (Universitat de Girona)

Organization Committee

Joan Solé (Universitat de Girona) (Chair)Renan-Ulrich Goetz (Universitat de Girona)Pietat Busquets (Universitat de Girona)Ramon Ballester (Universitat de Girona)Àngels Xabadia (Universitat de Girona)Carme Reig (Universitat de Girona)Josep Maria Guàrdia (Universitat de Girona)Ricard Rigall (Universitat de Girona)Lluís Planas (Universitat de Girona)Germà Coenders (Universitat de Girona)Dolors Berga (Universitat de Girona)Xavier Raurich (Universitat de Girona

Conference Secretariat

Conference IWREC/SEREÀngels LlinasUniversitat de Girona, Department of Economics,Campus Montilivi17071 Girona, Spainemail: [email protected]

mailto:[email protected]

3

PROGRAM

SUNDAY

9 - 10.30 h. Registration

10.30 h. Welcome addressRoom: 4-5

10.30 - 12.30 h. Session: Plenary IWREC: PI 1Room: 4-5 Chair: Yacov Tsur

Paper: Product-Market Competition in the Water Industry: VoluntaryNondiscriminatory PricingAuthors: Reto Föllmi, Urs MeisterPresenter: Urs Meister

Paper: Spatial Water Management under Alternative Institutional ArrangementsAuthors: Ujjayant Chakravorty, Eithan Hochman, Chieko Umetsu , David ZilbermanPresenter: Ujjayant Chakravorty

Paper: Why Aquifers are not Bathtubs: Optimal Control of Groundwater overSpace and TimeAuthors: Nicholas Brozović, David Sunding, David ZilbermanPresenter: Nicholas Brozović

Paper: Conjunctive Use of Surface Water and Groundwater with QualityConsiderationsAuthors: Catarina Roseta-PalmaPresenter: Catarina Roseta-Palma

12.30-14.30 h. Lunch

14.30-16.00 h. Session: Parallel IWREC: I 1

I.1.A-. WATER MANAGEMENTRoom: 1 (Sala de graus) Chair: Céline Nauges

Paper: Urban Water Institutional Transformation in KenyaAuthors: Joseph OnjalaPresenter: Joseph Onjala

4

Paper: Irrigator and Rural Community Perceptions of Water Reform in AustraliaAuthors: John G. Tisdell, John G. WardPresenter: John G. Tisdell

Paper: Residential Water Demand: An Empirical Analysis Using Co-Integrationand Error Correction TechniquesAuthors: Roberto Martínez-Espiñeira, Céline NaugesPresenter: Céline Nauges

I.1.B-. WATER MARKETSRoom: 3 Chair: W. L. Nieuwoudt

Paper: Using a Second Price Sequential Auction to Determine Who Will Supplyand Who Will Pay for Environmental WaterAuthors: Raymond. J. Supalla, Bettina Klaus, Osei YeboahPresenter: Bettina Klaus

Paper: Long Term Effects of Water Markets: Investing or Rent-Seeking?Authors: Rim Lahmandi-Ayed, Mohamed Salah MatoussiPresenter: Rim Lahmandi-Ayed

Paper: Incentives and Institutions of Water Market Transfers in South Africa :Two Case StudiesAuthors: W. L. Nieuwoudt, R. M. Armitage, G. R. BackebergPresenter: W. L. Nieuwoudt

16.00 – 16.30 h. Coffee Break

16.30 – 17.30 h. KEYNOTE LECTURERoom: 4-5 Chair: David Zilberman

Sharing Unknown Water ResourcesJean-Jacques Laffont

17:30-18:30 h. Session: Parallel SERE: S 1

S.1. A-. ENVIRONMENTAL POLICYRoom: 2 Chair: Katrin Millock

Paper: Emission Taxes and Monitoring Costs: Does it Really Make a DifferenceWho Bears the Costs and What is Being Monitored?Authors: Athanasios Kampas, Ben WhitePresenter: Athanasios Kampas

5

Paper: Bargaining Institutions under the Clean Development MechanismAuthors: Katrin Millock, Jean Charles HourcadePresenter: Katrin Millock

S.1. B-. NATURAL RESOURCESRoom: 3 Chair: Daniel Fuentes-Castro

Paper: Optimal Use of a Renewable Resource under Uncertainty and ConservationMotiveAuthors: Gilles LafforguePresenter Gilles Lafforgue

Paper: Tragedy of the Commons and Incentive MechanismsAuthors: Daniel Fuentes-Castro, Pierre-Alain JayetPresenter: Daniel Fuentes-Castro

CITY TOUR AND WELCOME RECEPTION

18.30h: Guided tour of the old part of the city by a small train

20.30h: Buffet dinner in the cloister of the Building of the College of Arts

MONDAY

9 - 10.30 h Session: Plenary IWREC: PI 2Room: 4-5 Chair: Ujjayant Chakravorty

Paper: Cost Effective Urban Runoff Management: Efficiency Conditions andMarket IncentivesAuthors: Haynes C. Goddard, Hale Thurston, Beth Lemberg, David SzlagPresenter: Haynes C. Goddard

Paper: Effects of Spot Water Markets on Economic Risk under Uncertain WaterAvailabilityAuthors: Javier Calatrava, Alberto GarridoPresenter: Javier Calatrava

Paper: Estimating Environmental Values to Inform Water Allocation DecisionsAuthors: Jeff Bennett, Mark MorrisonPresenter: Jeff Bennett


6

11.00 - 12.30 h. Session: Parallel IWREC: I 2

I. 2. A-. AGRICULTURE AND WATERRoom: 3 Chair: José A. Gómez-Limón

Paper: Land Use and Pollution Abatement in the Case of Agricultural DrainageUsing a Land Classification System - A Dynamic ApproachAuthors: Àngels Xabadia, Renan Ulrich Goetz, David ZilbermanPresenter: Àngels Xabadia

Paper: Policy Instruments for Groundwater Management for Agriculture andNatureAuthors: Petra J. G. J. Hellegers, Ekko C. van IerlandPresenter. Petra J. G. J. Hellegers

Paper: The Combined Impact of CAP Reform and the Water FrameworkDirective on a Spanish Irrigated AreaAuthors: José A. Gómez-Limón, Julio Berbel, Manuel ArriazaPresenter: José A. Gómez-Limón

I. 2. B-. WATER MARKETSRoom: 4-5 Chair: Anna Heaney

Paper: Operational Mechanism for the Efficient Workings of Water Markets -Some Australian ExperiencesAuthors: Henning Bjornlund, J. McKayPresenter: Henning Bjornlund

Paper: Water Markets under Pressure: Lessons from the Recent Experience of theColorado Big Thompson ProjectAuthors: Marie Leigh LivignstonPresenter: Marie Leigh Livignston

Paper: Irrigation, Downstream Water Quality and Water Pricing in the MurrayDarling BasinAuthors: Anna Heaney, Stephen BearePresenter: Anna Heaney

I. 2.C-. WATER MANAGEMENTRoom: 6 Chair: Jihad C. Elnaboulsi

Paper: Water Quality Protection through Irrigation ManagementAuthors: José Albiac-Murillo, Skender Uku Karaj, Yolanda Martínez-MartínezPresenter. Yolanda Martínez Martínez

Paper: Trading Behaviour in an Agricultural Water MarketAuthors: Nicholas Brozović, David Sunding, Janis CareyPresenter: Nicholas Brozović

7

Paper: Water Management and Delegation in FranceAuthors: Jihad C. Elnaboulsi, Thema-Cnrs CresePresenter: Jihad C. Elnaboulsi

12.30-14.30 h. Lunch

14.30 -16.00 h Session: Plenary SERE/IWREC: PS 1 / PI 3Room: 4-5 Chair: Joan Ribas

Paper: International Cooperation in Pollution ControlAuthors: Santiago J. Rubio, Begoña CasinoPresenter: Santiago J. Rubio

Paper: The Political Economy of Strategic Environmental Policy When WasteProducts Are TradeableAuthors: James H. Cassing, Thomas KuhnPresenter: Thomas Kuhn

Paper: What Is Delaying Privatisation and Water Markets in the U.S. West?Authors: K. William Easter, Sandra O. ArchibaldPresenter: K. William Easter


16.30-18.30 h. Session: Parallel SERE: S 2

S. 2. A-. ENVIRONMENTAL ASPECTS OF TOURISM ACTIVITIESRoom: 2 Chair: Germà Coenders

Paper: Climate Change Potential Impacts on Mediterranean TourismAuthors: Maria Pempetzoglou, Stella KaragianniPresenter: Maria Pempetzoglou

Paper: The Use of New Management Tools to Integrate Tourism into SustainableManagement of Coastal AreasAuthors: Rafael SardáPresenter: Rafael Sardá

Paper: Segmentation of the Tourist Market in the Costa Brava Area:Environmental Preferences and Other Variables.Authors: Carme Reig-Garcia, Germà CoendersPresenter: Carme Reig-Garcia

Paper: Predicting Random Level and Seasonality of Hotel Prices. A StructuralEquation Growth Curve ApproachAuthors: Germà Coenders, Josep Maria Espinet, Marc SaezPresenter: Germà Coenders

8

S.2. B-. GLOBAL PROBLEMS IN A DYNAMIC SETTINGRoom: 3 Chair: M. Özgur Kayalica

Paper: International and Intergenerational Dimensions of Climate Change: North-South Cooperation in an Overlapping Generations FrameworkAuthors: Alberto Ansuategi, Marta Escapa, Azucena PérezPresenter: Marta Escapa

Paper: Sustainable Growth in a North-South Trade ModelAuthors: F. Cabo, G. Martín Herrán, María-Pilar Martinez-GarcíaPresenter: María-Pilar Martínez-García

Paper: Strategic Environmental Policies in the Presence of Foreign DirectInvestmentAuthors: M. Özgur Kayalica, Sajal LahiriPresenter: M. Özgur Kayalica

21.00h: Conference Banquet at the restaurant l’Alvareda

TUESDAY

9.00 - 10.00 h. Session: Parallel IWREC: I 3

I. 3. A-. PROPERTY RIGHTS, WATER DEMANDRoom: 4-5 Chair: Mary E. Renwick

Paper: Maori, the Crown and Evolving Property Rightsfor Rivers and Streams in New ZealandAuthors: Frank Scrimgeour, Quentin WayPresenter: Frank Scrimgeour

Paper: California’s Budding Water Market: An Analysis of Willingness-to-Payand Accept-CompensationAuthors: Mary E. RenwickPresenter Mary E. Renwick

I. 3. B-. INDEX NUMBER ANALYSISRoom: 6 Chair: Germà Coenders

Paper: Index Number Analysis of Namibian Water IntensityAuthors: Simon Masirembu, Jesper StagePresenter: Simon Masirembu

9

I. 3. C-. WATER CONSERVATION AND WATER SCARCITYRoom: 3 Chair: Xavier Grau

Paper: Front the Change, a Challenge for Mexico: Water ConservationAuthors: Martín-Alfonso Gutiérrez-LópezPresenter: Martín-Alfonso Gutiérrez-López

Paper: Managing Water Scarcity: A Case Study in Northeaster SpainAuthors: Xavier GrauPresenter: Xavier Grau


10.30 – 12.30 h. Plenary IWREC: PI 4Room: 4-5 Chair: Renan Ulrich Goetz

Paper: Estimating the Benefits of Low Flow Alleviation in Rivers: the Case of theTicino RiverAuthors: Silvia Banfi, Massimo Filippini, Loa BuchliPresenter: Silvia Banfi

Paper: Water Conservation Policy and the Yield Effect of Modern IrrigationTechnologiesAuthors: David Zilberman, David SundingPresenter: David Zilberman

Paper: Irrigation Management in a Dynamic Soil-Water-Yield SystemAuthors: Uri Shani , Yacov Tsur, Amos ZemelPresenter: Yacov Tsur

Paper: Does Factor Price Risk Encourage Conservation?Authors: Georgina Moreno, David SundingPresenter: David Sunding

12.30-14.30 h. Lunch

14.30-16.00 h. Session: Parallel SERE: S 3

S. 3 . A-. EMPIRICAL CONTRIBUTIONSRoom: 2 Chair: Christophe Béné

Paper: The CAP and the EDM Portuguese Region Agricultural Sector Response toPrices and InputsAuthors: Leonardo CostaPresenter: Leonardo Costa

10

Paper: Property Rights and Traditional Management Systemsin African Inland Fisheries. A Regional Study of the Lake Chad BasinAuthors: Christophe Béné, A. Neiland, T. Jolley, B. Ladu, S. Ovie, O. Sule, M. Baba,E. Belal, K. Mindjimba, F. Tiotsop, L. Dara, A. Zakara, J. Quensiere Presenter: Christophe Béné

S. 3. B-. INDUSTRIAL ORGANIZATION AND ENVIRONMENTAL POLICYRoom: 3 Chair: Gérard Mondello

Paper: Mixed Oligopoly and Environmental PolicyAuthors: Juan C. Bárcena Ruiz, M. Begoña GarzónPresentar: M. Begoña Garzón

Paper: Transboundary Pollution from Consumption in a Reciprocal DumpingModelAuthors: M. Özgur Kayalica, Olgay KayalicaPresenter: M. Özgur Kayalica

Paper: Natural Monopoly and the Environmental and Health Harms Question:Some Basic Concepts.Authors: Gérard MondelloPresenter: Gérard Mondello


16.30-17.30 h. Session: Parallel IWREC: I 4

I. 4. A-. WATER TRANSFERRoom: 2 Chair: Daniel E. Osgood

Paper: “The Law of Water” and the Transfer of Rights of Use: an Analysis inTerms of EfficiencyAuthors: Iñaki Arto-OlaizolaPresenter: Iñaki Arto-Olaizola

Paper: Ambos Nogales: A Tale of Two Cities and Water Management on the U.S.-Mexico BorderAuthors: Daniel E. Osgood, George B. FrisvoldPresenter: Daniel E. Osgood

11

I. 4. B-. VOLUNTARY AGREEMENTS AND WATER RIGHTSRoom: 1 (Sala de Graus) Chair: Leslie Lipper

Paper: Voluntary Agreements to Reduce Industrial Wastewater in CataloniaAuthors: Miquel A. BovéPresenter: Miquel A. Bové

Paper: Cost Benefit Analysis in the Context of Indigenous Water Rights: ACritique of the U.S. Water Resource Council Principles and GuidelinesAuthors: Leslie Lipper, James P. Merchant, David Zilberman, Jason BassPresenter: Leslie Lipper

I. 4. C-. AGRICULTURE AND WATER IIRoom: 3 Chair: Josep C. Vergés

Paper: Dyke Maintenance and Dyke Removal at the German Baltic Coast:Economic and Ecological ConsequencesAuthors: Theodor FockPresenter: Theodor Fock

Paper: The Impact of the CAP and Full Cost Pricing on Spanish IrrigationAuthors Josep C. VergésPresenter: Josep C. Vergés

17.30-18.00 h. Closing session:Room: 1 (Sala de Graus)

Andreu Mas-Collell (economist and Catalan Minister for Universities, Researchand Information Society)

12

ABSTRACTS

“The Law of Water” and the Transfer of Rights of Use:an Analysis in Terms of Efficiency

I. ARTO OLAIZOLA

Parallel IWREC: I 4 A

The posibility (by means of a contract) of transfering water´s use rights arises in theSpanish Law like a tool to promote the efficiency in the use of this resource. In thispaper the contract of transfer of rights is analysed from the point of view of efficiency.The work is organized as follows:First, I analyse a model in which the possibility of interchanging water among differentusers does not exist. Secondly, I consider a model of an efficient contract of transfer ofrights. Finally, I study the efficiency of the contract of transfer of rights, such as it isdefined in the Law 46/1999.The most relevant aspects considered are:i) The participants in the contract, both the transferer and the transferee, must beconcessionary or titular of some right of privative use of water. In addition, thetransferee must be of equal or greater rank according to the established order ofpreference in the Plan Hidrológico de cuenca (Hydrologic Plan of river basin). On theother hand the Organismos de cuenca (the river basin Institutions) are also legitimizedto participate in these contracts exerting the right of preference acquisition.ii) The annual volume of water capable of being transfered can not be greater than theamount used by the transferer.iii) Some qualitative aspects of the contract,·The economic compensations for the transfer of rights.The authorization and non-authorization of the contracts and its consequences.·The necessary infrastructures for the accomplishment of the transfer.The analysis allows to conclude that the contract of transfer of rights allows theachievement of more efficient water allocations. Besides, the efficiency of the finalallocation will depend on the initial distribution of endowments and on how theAdministration implements the restrictions introduced in the Law.

Estimating the Benefits of Low Flow Alleviation in Rivers:the Case of the Ticino River

S. BANFI, M. Filippini and L. Buchli

Plenary IWREC: PI 4

In Switzerland 60% of electricity is produced by hydropower plants. The constructionand operation of these plants determine some negative environmental externalities, suchas diminishing groundwater levels and spring flows, and a reduction in river flow,which can severely curtail recreational and fishing activities. This study concentrates onan ex-ante appraisal of the monetary benefits resulting from an enhancement of river

13

flow for recreational fishing purposes. A comparison of estimates of these benefits tothe corresponding costs, in terms of loss of electricity production, incurred byhydropower plants to alleviate low flows may be useful for policy makers. For thisanalysis, we extend the Travel Cost Method (TCM) to estimate the economic value ofrecreational fishing in the Ticino River (the most important river of the Canton Ticino)under existing and hypothetical river flow conditions. Anglers were asked to state howthe number of trips to the Ticino River would change if an increase in the river flow wasimposed on the hydropower plants. The empirical results show that an enhancement ofriver flow increases the annual consumer surplus for a typical angler by approximately440 CHF or around 295 EURO.

Property Rights and Traditional Management Systemsin African Inland Fisheries. A Regional Study of the Lake Chad Basin

C. BÉNÉ, A. Neiland, T. Jolley, B. Ladu, S. Ovie, O. Sule, M. Baba, E. Belal,K. Mindjimba, F. Tiotsop, L. Dara, A. Zakara and J. Quensiere

Parallel SERE: S 3 A

Although there exists a rich literature on Traditional Management Systems of inshorefisheries in North and South Americas, Caribbean, Asia and Pacific islands, much lessinformation is available on African artisanal fisheries. The objective of this paper is topresent the first basin-scale thorough descriptive study of traditional managementsystems operated in the region of the Lake Chad Basin (Sub-Saharan Africa). For thispurpose, 64 villages were surveyed in the three major fishing areas around the Lakebasin (in Nigeria, Cameroon and Chad) using methods derived from Rapid RuralAppraisal techniques. The survey focussed on the status and organisation of the localmanagement system and its interactions with the modern (de jure) management system.The results show that the fishing activities within the whole Basin are still largely underthe control of the traditional local authorities, usually village heads or equivalent.Although some local divergences may exist in the level of control imposed by thesetraditional authorities, the survey indicates that the modern administrations managed toenforce de jure authorities only on the water-bodies which were not initially under thetotal control of the traditional authorities or on the water-bodies where the highlyunstable political situation of the whole region entailed the presence of permanentarmed forces. This concerns essentially the open-waters of the Lake Chad itself and theriver-borders Chari and Logone between Chad and Cameroon. For the rest of the water-bodies (floodplains, swamps, seasonal and permanent pools, rivers and permanentand/or tributaries) the predominance of the traditional authorities can not be denied. Inthese cases, the property regimes operated by the local communities are very similar towhat is usually described in the literature as Common Property regimes (rescommunes). The analysis however emphasises the high diversity and locally-specificnature of these systems. The prevalence of these traditional management systemsinduces that a very large number –in fact almost the totality- of the water-bodies withinthe Lake Chad Basin are de facto under some sort of access regulation and that,contrarily to what is sometimes assumed or asserted for developing countries’ fisheries,open access situations are very rarely encountered in the Basin. The few de facto openaccess fishing grounds are areas that traditional authorities have never really controlled(such as Lake Chad) or areas that they have had to “give up” in recent times due to the

14

presence of armed groups but where the represents of the modern authorities (i.e. thefisheries departments) did not manage to impose de jure control (sections of the Logoneor Chari rivers). These areas are also the places where illegal parallel taxation systemsoperated by non-authorised government agents (e.g. Army) have developed essentiallyas a consequence of the remoteness and political instability of the whole Basin.

Estimating Environmental Values to Inform Water Allocation Decisions

J. BENNETT and M. Morrison

Plenary IWREC: PI 2

In the state of New South Wales, Australia, government regulations require that localWater Management Committees, comprising water users, scientists and governmentofficers, provide advice regarding the sharing of water resources between competingusers. The development of this advice requires the social and economic assessment ofalternative allocations. To inform such assessments, the values of improvedenvironmental conditions in a sample of rivers from across the state have beenestimated in dollar terms. Choice Modelling is the non-market valuation technique usedto derive these estimates. Its application involves a sample of people who would beaffected by improved environmental conditions being asked to make a sequence ofchoices between alternative river management options. The observed choices enable thequantification of the trade-offs that people are willing to make. So long as one of theattributes used to describe the alternative river management options is a financial cost tothe respondent, a monetary trade-off can be observed and hence a value estimatederived which is suited to application in a benefit cost analysis. Over 2000 New SouthWales residents participated in the Choice Modelling survey which was undertaken in amail-out/mail back format from October to December, 2000. Values were estimated forfour key attributes of the environmental condition of rivers: streamside vegetationcoverage, the presence of native fish species, the presence of water bird and other riverfauna species and water quality. Five rivers were targeted in the application, with eachbeing selected as a “representative” of rivers within a bio-geographic region of the state.It was found that the attribute values estimated differed between the rivers and were alsodependent on whether respondents lived within or outside the catchment. Because ofthese differences, a protocol was developed to allow the transfer of the estimated valuesfrom the five targeted rivers and the other rivers across the state for which water sharingarrangements were under consideration. This protocol involved the use of a benefittransfer model that is aimed at generalising the relationships between river andrespondent location and value estimates. The model was generated through the analysisof the pooled choice data relating to all of the five targeted rivers. Choices wereexplained in the model by variation in the environmental improvements available andthe socio-economic characteristics of the respondents, as is the norm for ChoiceModelling. However they were also explained by variation in the region in which the“representative” river is located and the location of the respondent, either within oroutside the catchment. The outcome of the protocol is a step by step guide for the WaterManagement Committees seeking to estimate the environmental values arising fromalternative water sharing arrangements.

15

Operational Mechanism for the Efficient Workings of Water Markets.Some Australian Experiences

H. BJORNLUND and J. McKay

Parallel IWREC: I 2 B

Recent policy developments in Australia have seen a wave of policy changes within thewater industry. Following international trends, increased reliance is placed on the use ofmarket mechanism and devolution of the management of and responsibility for waterresources and the associated infrastructure. Water users will have to pay the full cost ofwater, government subsidies and cross-subsidies will soon be a thing of the parts.Auctions will be used to allocate new water and markets will be relied upon toreallocate existing water between competing users. Irrigation infrastructure will beprivatized or corporatised leaving the responsibility for its maintenance andmanagement within the local communities.Both permanent and temporary markets have operated in Australia for close to twentyyears and their use have accelerated sharply since the mid 1990s as their full potentialslowly was acknowledged both by water users and policy makers. A recent report by theAustralian Academy of Technological Sciences and Engineering about water in theAustralian economy concluded that water does not have to be a constraint to the futuresustainable growth of water dependent communities and industries. It however pointout, that for that to be the case, significant structural adjustments need to take placewithin the irrigation industry moving water to more efficient and higher value users.Water trading and full cost recovery prices were seen as major instruments in thisprocess. The latter would force inefficient low value producers out of business, and theprice offered in the market would be an incentive for them to do so, and the marketitself provide the mechanism by which this could take place.The same report pointed out, that more efficient markets and more sophisticated marketinstruments would be required to maximise the benefits from trade. This is supported byrecent changes within the irrigation industry, shifting the risk of supply uncertainty fromthe water authorities to the irrigators. The increased use of contract farming, committingirrigators to deliver a certain volume of produce at a fixed price, increases the irrigatorsrisk, if water supply is reduced, or cost of production goes up. Under these conditions,irrigators need more efficient tools to manage risk – instruments such as futures andoptions in water have the potential to provide that.This paper will review some of the market mechanism adopted by water authoritiesalong the River Murray, and how more sophisticated market instruments could be usedby irrigators to manage risk. Based on interviews with approximately 1,000 irrigatorsthe paper analyses how the market mechanisms have been taken up as well as theirrigators’ perception of the market process. The paper will also discuss the operationand outcomes of an Interstate Water Trading Pilot Project, which has operated for somethree years along a stretch of the River in New South Wales, Victoria and SouthAustralia.

16

Voluntary Agreements to Reduce Industrial Wastewater in Catalonia

M. A. BOVÉ


Environmental policy can be implemented through a variety of instruments.Traditionally, the environmental literature distinguishes between command-and-controlmeasures and economic instruments. However, since the end of the 80's, a new set ofpolicy instruments has been introduced in several countries to prevent industrialpollution. Voluntary agreements (VA), between regulators and polluters, appears as analternative or a complement to regulatory measures and economic instruments.According to this approach, pollution reduction is attained through a contract betweenthe public administration and the industry. The firm agrees to achieve a certainenvironmental objective and receives a subsidy to change its technology. VA can beattractive since they have potential to reduce compliance costs by allowing greaterflexibility and to reduce administrative, informational and other transaction costs.The Water Treatment Agency (actually, Catalan Water Agency) is responsible, since1991, for wastewater treatment in Catalonia. This Agency established an effluentcharge, and an Industrial Wastewater Treatment Programme, where proposes the actionsand tools necessary to prevent and correct environmental damages in the water system.One kind of these tools is the Gradual Decontamination Programme (GDP). It is anagreement applied specifically and individually to an industrial establishment. By whichthe firm undertake to take a series of measures to improve its dumping, until the qualityof its wastewater adapts to the Water Law, the Coast Law, or the rules and regulationsof the wastewater treatment plant.In this paper we study how voluntary agreements would be able to improve theeffectiveness of economic instruments in the control of industrial pollution. Weexamine the feasibility to introduce voluntary agreements in the context of an industrialregulation model. To perform this analysis, first we develop a model, which extendprevious studies about regulator behaviour analysis with innovation in pollution control,adding some ideas from game models of firm-regulator interdependencies with R&Dstrategies. Moreover, we test our model showing some results of Catalan experience onthe use of voluntary approaches in the field of wastewater reduction policy.

Trading Behavior in an Agricultural Water Market

N. BROZOVIĆ, D. Sunding and J. Carey

Parallel IWREC: I 2 C

In areas with water scarcity and an unequal allocation of water rights, water markets areone possible mechanism for increasing the efficiency of water use. In informal marketswithout posted prices or centralized trading locations, potential traders must engage incostly search activities. We present a simple model of the gains from trade in aninformal water market, conditional on participation. The key features from this analysismay be embodied in a random utility model, with the discrete choice of trading partnerconsistent with a conditional logit framework. Using four years of water trading datafrom the Westlands Water District in California, we estimate two separate conditional

17

logit models: the seller’s choice of a buyer, and the buyer’s choice of a seller.Estimation results highlight the role of ongoing trader loyalty in determining tradingpatterns, and suggest that there are large seasonal and annual effects in observed tradingpatterns. In particular, consistent with the simple theoretical model presented, alltraders are more likely to trade with larger farms than with smaller farms. Moreover,there is evidence that some types of farm are curtailing or modifying agriculturalproduction in order to speculate in the water market during droughts.

Why Aquifers Are not Bathtubs:Optimal Control of Groundwater over Space and Time

N. BROZOVIĆ, D. Sunding and D. Zilberman

Plenary IWREC: PI 1

Throughout the world, agricultural, industrial and residential water demand is often metwith the extraction of groundwater. Unsurprisingly, there is an extensive literature onthe optimal intertemporal allocation of groundwater. Most of these papers are concernedwith the choice of policy instruments to maximize net benefits, and on how farcompetitive or open-access scenarios diverge from the optimal solution. However, theaquifer (groundwater reservoir) itself is treated very simply: for most models, anappropriate conceptualization is a bathtub, with wells equivalent to straws stuck into it.Such 'single-cell' models clearly capture the common property aspect of groundwater,but cannot reproduce important behavior resulting from the spatial variability of naturalsystems. In particular, it is obvious that physical parameters such as the topography ofthe surface and the groundwater table, and hydrologic properties such as aquiferconductivity and capacitance place important constraints on optimal resourcemanagement that are not captured in single-cell models.A separate literature discusses optimal spatial allocation of resources. Using vonThünen-like models, these studies analyze the welfare and distributional impacts ofspatially variable policy. Whereas these studies explicitly solve for resource price,production and zoning decisions and choice of technology across space, the initialresource stock and location are usually exogenous.In this paper, we present a model of optimal spatial allocation of groundwater,introducing several new features. First, we incorporate relevant physical parameters(such as surface topography and aquifer hydrology) in a realistic fashion in our model.Second we treat pumping location and amount as well as spatial allocation asendogenous. Third, we explicitly solve for heterogeneous spatial demand, allowing avariety of urban and agricultural water-use scenarios to be analyzed. We examine theefficiency and equity effects of our optimal solution compared to a uniform pricingsolution, and consider how these results would change if the physical parameters wereignored. Finally, we look at an important constrained solution: optimal spatial waterallocation in the presence of seawater intrusion in a coastal aquifer. We describe howseawater intrusion modifies our analysis and under what conditions assumptions aboutphysical parameters can become critical in determining optimal policy in coastal areas.

18

Effects of Spot Water Markets on Economic Riskunder Uncertain Water Availability

J. CALATRAVA and A. Garrido

Plenary IWREC: PI 2

This paper analyses the effects on the profits of water markets participants in presenceof uncertainty regarding the amounts of water to which they are entitled. Suchuncertainty reduces market activity. It is shown that, while spot water markets reducethe risks faced by both buyers and sellers, sellers are always better-off with marketsthan in absence of them. The analysis of buyers’ profits show that they would be better-off if they were given more entitlements instead of buying the extra units of water atmarket price. However, the market allows them to mitigate the economic risks theyface, and it is a preferred option to the prohibition to exchange for a risk averse marketparticipant.

Spatial Water Management under Alternative Institutional Arrangements

U. CHAKRAVORTY, E. Hochman, C. Umetsu and D. Zilberman

Plenary IWREC: PI 1

This paper examines the impact of alternative institutional arrangements in thegeneration, distribution and allocation of water. More specifically, it develops a spatialframework to address what happens to aggregate water use, output and prices as well asto the pattern of water allocation, technology investments and quasi-rents over spaceunder alternative market structures such as an output monopoly, a water-users’association, a public utility and a project without government intervention. Theanalytical results are illustrated with data from California agriculture and suggest that ifgovernment intervention is costly, an output or input monopoly may be a preferredsecond-best alternative to a decentralized project under high output elasticities.

Predicting Random Level and Seasonality of Hotel Prices.A Structural Equation Growth Curve Approach

G. COENDERS, J. M. Espinet and M. Saez


This article examines the effect on price of different characteristics of holiday hotels inthe sun-and-beach segment, under the hedonic function perspective. Monthly prices ofthe majority of hotels in the Spanish continental Mediterranean coast are gathered fromMay to October 1999 from the tour operator catalogues. Hedonic functions are specifiedas random-effect models and parametrized as structural equation models with two latentvariables, a random peak season price and a random width of seasonal fluctuations.Characteristics of the hotel and the region where they are located are used as predictorsof both latent variables. Besides hotel category, region, distance to the beach,

19

availability of parking place and room equipment have an effect on peak price and alsoon seasonality. 3-star hotels have the highest seasonality and hotels located in thesouthern regions the lowest, which could be explained by a warmer climate in autumn.

The CAP and the EDM Portuguese Region Agricultural SectorResponse to Prices and Inputs

L. COSTA


A dual flexible quadratic restricted profit model is recovered to characterize the EntreDouro e Minho (EDM) Portuguese region agricultural sector response to prices andinputs. The data comes from Monke et al. (1998) representative farms’ budgets for theregion. Monke et al. (1998) research project, undertaken in the early and mid 1990’sabout small farm agriculture in Portugal and Italy, has identified twelve multiple croprepresentative farms corresponding to 87% of the farms and 73% of the cultivated areain the EDM. The mathematical programming approach followed is positive (PMP).First, the shadow prices of fixed inputs for each representative farm are obtained from aLinear Program (LP), which forces to base year observed net output and fixed inputallocation. Second, the Maximum Entropy (ME) technique is used to jointly recover theparameters of twelve flexible quadratic restricted profit functions consistent witheconomic theory (namely duality) and the data of the representative farms. Therecovered restricted profit model exactly reproduces representative farms observed baseyear net outputs and fixed inputs. A regional dual flexible quadratic restricted (shortrun) profit function is derived from the aggregation of the recovered model. Making useof duality theory, a regional dual flexible quadratic unrestricted (long run) profitfunction is also derived from the corresponding short run regional profit functionparameters.Results show overall rigidity of the regional agricultural sector response to prices andinputs. Nitrogen and water appeared as inputs that are complements in the short andlong runs. The rigidity of nitrogen response to its own price precludes taxes as astrategy to control its use. As opposed, buying water out of the regional agriculturalsector is a good strategy to control not only water use but also nitrogen use. TheCommon Agricultural Policy (CAP) has some perverse environmental effects. CAPpromotes the set of commodities (capmsc) that use more water and nitrogen (waterpollution). Therefore, it is expected the decline of CAP supports to reduce the regionalagricultural sector pressure on water resources, in the short and long runs. As adrawback, such a decline promotes in the long run a more intense use of fossil energy.

What Is Delaying Privatization and Water Markets in the U.S. West?

K. W. EASTER and S. O. Archibald

Plenary IWREC: PI 3

As we consider the potential for markets and privatization to improve efficiency ofwater resources across sectors and regions, it is clear that there has been resistance to

20

such changes. We should not be surprised by such resistance since there will be gainersand losers if water is privatized and water markets spread. There are also some widelyheld beliefs and/or paradigms concerning water use and allocation in the Western U.S.that help explain this resistance. In this paper, we will highlight three paradigms thatare likely to work against the privatization of water resources and water marketdevelopment. We briefly examine how these three paradigms have affected Westernwater institutions and market development. Close examination of California’s efforts todevelop water markets in the State provides a case study of how these paradigms haveoperated to limit water market development and privatization. Analysis points out thateven within the constraints imposed by these paradigms local efficiency gains arepossible and innovative institutional arrangements can evolve. Finally, the paper willspell out some institutional changes that will make privatization and water marketsmore acceptable and reduce the transaction costs of water exchanges.

Water Management and Delegation in France

J.C. ELNABOULSI and T.C. Crese


The water industry is largely a natural monopoly. Water distribution and sewerageservices are characterized by networks and its natural monopoly derives from theestablished local networks of drinking water and sewers: they are capital intensive withsunk costs and increasing returns to scale. In France, local communities have a localrequirement of providing public services under optimum conditions in terms oftechniques and cost-effectiveness, and subject to respect different kind of standards interms of water quality and level of services. They are responsible for producing anddistributing drinking water, and collecting and treating wastewater. Furthermore, theFrench water utilities are required to be financially self-sufficient. Rate-setting variesacross regions and local territories due to a variety of organizational features of servicesand availability of water resources. The management of these local public services canbe public or private: local governments have the right, by the constitution, to delegatewater service management to private companies which operate under the oversight oflocal municipal authorities. Today, nearly 80% of the French population receive aprivate distributed water. Different reasons are responsible for the poor performance andlow productivity of most French public water utilities: technical and operational,commercial and financial, human and institutional, and environmental. Thus, manywater public utilities have looked for alternative ways to provide water and sanitationservices more efficiently, to improve both operational and investment efficiency, and toattract private finance. The purpose of this paper is to present the French organizationalsystem of providing drinking water services, and collecting and treating wastewaterservices: legal aspects, contracts of delegation, and competition.

21

International and Intergenerational Dimensions of Climate Change:North-South Cooperation in an Overlapping Generations Framework

A. Ansuategi, M. ESCAPA and A. Pérez

Parallel SERE: S 2 B

Global environmental problems such as climate change have both an international andan intertemporal dimension. Recently, some papers have used an overlappinggenerations framework to analyze the climate change problem taking into accountjointly the issues of intergenerational equity and intertemporal efficiency but withoutconsidering the international aspect of the problem. In this paper we extend suchapproach by considering an overlapping generations model of climate-economyinteractions where the world is split in to regions: North and South. We report tonumerical simulations of the calibrated model to analize the effect of cooperation overeconomic and climate variables under two different scenarios: long-lived and short-lived governments. The main aim of our analysis is to test numerically whether Johnand Pecchenino’s (1997) theoretical result, which states that international agreementswhich transfers that lack an intergenerational perspective could actually harm theenvironment, applies to the problem of climate change or not. The preliminary resultsobtained show that cooperation is always beneficial to mitigate climate change.

Dyke Maintenance and Dyke Removal at the German Baltic Coast:Economic and Ecological Consequences

T. FOCK


Between 1930 and 1975 most low-situated grasslands at the Southern German Balticcoast were separated from natural flooding of the Baltic Sea by "dyke constructions".This was undertaken for the intensification of agricultural use. Water regulation withdrainage, ditches and pumping stations was established. The costs were taken orsubsidised by the state institutions in the socialist period.After 1989/90 all dykes without functions in the protection of settlements and roadswere passed to water regulation cooperatives (so called dykes of 2nd order).Maintenance costs now have to be taken increasing proportion by land users.For ecological reasons removal of dykes is intended: To regain the endangered biotopeof saltgrasslands (very high biodiversity) and for peat protection (carbon dioxidemissions).First experiences of consequences following dyke removals are given now:consequences of the future agricultural use, the flooding patterns, ecological influences(mainly vegetation), cost sharing and touristical aspects. The consequences areevaluated with a partial cost-benefit analysis. Economic consequences on farm-leveland for society are shown. The results show that in most cases dyke removal isadvantageous for society even when users are compensated.

22

Tragedy of the Commons and Incentive Mechanisms

D. FUENTES CASTRO and P.A. Jayet


Rivalry to non excludable common goods is an usual phenomenon appearing when norights of access or no rights of property are clearly defined. Overconsumption ofresources leads concerned agents to look after co-operation in the sense of Hardin. Thepaper proposes an analysis combining a pay to access and a contract designedefficiently by an authority commonly accepted by all concerned agents. The key point isthat the producers are freely to accept the contract. The non acceptance of the contractsallows the producers to extract the common good at a free rate.The optimal mechanism is based on the theory of incentives applied in an adverseselection context. We consider a set of producers who need a common good as aproduction factor. Their performance is a characteristics differentiating them. Theregulator does not know which is the characteristics of each one of the producers. Therelevant situation arises in case of free access to the resource, when the extraction ratebased on private production leads to the extinction and consecutively to the whole cut ofproduction. Each agent considers that any quantity not extracted by himself can beextracted later by someone else.We suppose that producers pay a fixed uniform right of access to the common good.This hypothesis refers to a subjective consideration: agents cooper in order to preservetheir own economic sustainability. This cost is viewed as an insurance. In other wordsthey comply to what Hardin expected : "the population problem has no technicalsolution; it requires a fundamental extension in morality".The regulation authority is assumed to be an institution independent from individualproducers. The nature of the regulator depends on who finances the contractmechanisms. If producers accept to pay for the access to the resource, then a privatesolution is possible.Our principal result is that the two incentive mechanisms (tax-transfer) and (quantity-transfer) offer a technical solution to the tragedy of the commons. Moreover we showhow a subset of agents can be efficiently excluded from the contracts.

Mixed Oligopoly and Environmental Policy

J. C. Bárcena Ruiz and M. B. GARZÓN


The literature on mixed oligopoly does not consider the role that the environmentalpolicy of the government plays on the decision whether to privatize public firms.Assuming that there are one public firm and n private firms and that the governmentchooses an environmental standard we show that, when the number of private firms islow enough, the public firm is privatized if it is inefficient enough. When the number ofprivate firms is high enough, the government always privatizes the public firm. We alsoshow that the range of values of the parameters for which the government privatizes thepublic firm is greater than when environmental policy is not considered.

23

Cost Effective Urban Runoff Management:Efficiency Conditions and Market Incentives

H. C. GODDARD, H. Thurston, B. Lemberg and D. Szlag

Plenary IWREC: PI 2

The problem of storm water management in urban areas has been one of considerablefrustration for environmental authorities, especially so in the older cities that havecombined sanitary and storm sewers. This condition results in extreme variability ofwaste water flows for centralized treatment plants, with a serious disparity between thecapacity required to treat most flows and that for extreme events. The unwillingness tobuild expensive plants with sufficient capacity to treat all waste and storm water flowsresults in frequent discharge of untreated waste water into streams and rivers causingfrequent violations of water quality standards. Construction of large facilities forstoring commingled waters is also very expensive, and the result of the huge potentialexpense and the apparent lack of a good public infrastructure alternative to very largestorage and treatment facilities usually results in nothing being done to diminish theproblem. There are low cost alternatives that require a dispersed investment in storageon private properties. For the first time in the literature, we present a) the efficiencyconditions for a cost-effective management regime for combined sewer overflows thatwould make use of such low cost alternatives; b) the design of a tradable credit orpermit system that would achieve that optimal spatial distribution of such low costinvestments; and c) the market clearing conditions for the management regime; and c)the results of a numerical simulation applied to a subwatershed in the State of Ohio.

The Combined Impact of CAP Reform and the Water Framework Directiveon a Spanish Irrigated Area

J. A. GÓMEZ LIMÓN, J. Berbel and M. Arriaza


Irrigated agriculture is directly influenced by several UE policies, especially by CAPand more recently by the Water Framework Directive (WFD). The demand for water byagriculture is explained as a production factor and is therefore related to productivity;CAP policy thus drives the demand side. On the other hand, the objective of the WFD isto regulate the supply side (cost, quality, quantity). This work examines therelationships between these two policy instruments and applies a scenario analysis to acase study in Central Spain, using a multi-criteria model of farmer behaviour. Theresults show that the two instruments must be co-ordinated in order to meet socio-economic goals (farmers’ income and labour demand) and environmental protection(water-use efficiency).

24

Managing Water Scarcity: A Case Study In Northeaster Spain

X. GRAU


As a result of both water scarcity and future water demand increases, Catalonia, aheavily industrialized region in Northeastern Spain, is today looking at a transfer fromthe Rhone River in southeastern France as the solution for future water shortages in theBarcelona metropolitan area.This study analyzes the current management system for water resources in theBarcelona metropolitan area. An analysis of the recent and future evolution of watersupply and demand in the study area is initially presented. Special attention is given tothe long-term demand forecast done by the water utility. The second part of the studyreviews the transfer from Rhone River and analyzes the opportunities offered bydemand-side management measures to reduce future water demands.The study also includes an empirical analysis of water demand in the study area usingtwo different regression models. The first, an econometric demand model, is aimed atinvestigating the relationship between water demand and other explanatory variablesthat affect urban water use. Once the model is estimated, it is then used to simulatevariations in water demand with population changes. The second part of the empiricalanalysis consists of a short-term water demand forecast for the Metropolitan Entity ofHydraulic Works and Waste Treatment (E.M.S.H.T.R.) service area using a time-seriesmodel.The results of the simulation show that while water demand in the study area mayincrease over the next twenty-five years, this increase may not be as high as predictedby the water utility. Finally, the results of the short-term water demand forecast for theE.M.S.H.T.R. service area show that water demand is expected to continue the fallingtrend experienced during the nineties.

Front the Change, a Challenge for Mexico: Water Conservation

M. A. GUTIÉRREZ LÓPEZ


Mexico is one of the richest countries talking about natural resources. Nevertheless, thewater administration is one of the most serious problems than it will face the newgovernment. The President initiates his period of six years with the great challenge toincrease the three great aspects of the hydraulic sector: the water availability, theenvironmental and its economic development. The new political in Mexico is visibly theworse scene to carry out this difficult task. It is enough to mention that when thefinancial plan was approving for the present year. The section more affected by thebudgetary reduction was the environmental and natural resources; because that 658million pesos (66 million dollars) took off to him, 593 million (60 million dollars)correspond to the National Commission of Water. In addition, many River BasinCouncils and the operating potable water organisms in Mexico are economicallylimited; what it has been transforming into a diminution of the quality of the service.

25

Another one of the serious problems that must be confronted in the next years is theestimate of the availability and the distribution of resource water in Mexico. In order tomake the estimation the legal and juridical support it is already prepare. Mexico is oneof the few countries in the world that has a very complete normative structure in thewater administration and environmental domain. Is enough with mentioning theNational Water Law (and its Regulation), the General Law of the Ecological Balanceand Protection to the Atmosphere and the Regulation in the matter of EnvironmentalImpact. However, all the orderings of this normative have not been applying correctly.In this sense and in spite of counting with all necessary legal and administrativeelements; it is important to introduce the following question: how to obtain adevelopment of the hydraulic sector through an economy limited?The present paper reviews of a critical style the main legal aspects in matter of waterand environmental in Mexico. There present situation, the fundamental components andset out some strategies and actions to carry out during the next administration. Theanalysis converges mainly in the relation: availability and economic development ofhydraulic sector. It is attempt that this paper functions as a document as consultation forthe processing of Hydraulic Program 2000-2006 and as an auxiliary guide for theCommission of Hydraulic Resources in the House of Representatives, in Mexico.

Irrigation, Downstream Water Quality and Water Pricingin the Murray Darling Basin

A. HEANEY and S. Beare


While irrigation has facilitated the development of high value agricultural production inAustralia’s Murray Darling Basin, it also generates significant externalities in terms ofwater quality. Irrigation has substantially increased the amount of water enteringgroundwater systems and, as a result, led to rising water tables. As water tables rise,there is an increase in mobilised salt that is discharged into the Murray River. It isestimated that salt concentrations in the Murray River at Morgan, South Australia, willincrease from an average of 570 EC to 900 EC in 100 years. Higher stream salinity canreduce the productive capacity of water for urban, industrial and agricultural uses, andmay affect the quality and variety of a range of environmental assets includingwetlands, floodplains and riverine ecosystems.The impacts of irrigation on stream salinity vary spatially as the salt concentration ofgroundwater that is discharged to the Murray River ranges from almost fresh to that ofseawater. Water trade that does not account for these externalities may lead to decline,as opposed, to a gain in economic welfare.To evaluate the downstream costs and benefits of groundwater flows from irrigation inthe Murray Darling Basin, a simulation model has been developed at ABARE, incooperation with the Commonwealth Scientific and Industrial Research Organisation(CSIRO). The model incorporates the relationships between land use, vegetation cover,surface and groundwater hydrology and agricultural returns. The model consists of anetwork of land use units linked through overland and groundwater flows. Land useunits are defined according the characteristics of the groundwater system and each unitis managed independently to maximise returns given the level and salinity of availableland and water resources, subject to any land use constraints.

26

The model has been used to estimate the costs and benefits associated with changes indownstream salinity by comparing a non-intervention or baseline scenario with sitespecific changes in irrigation entitlements. The results of this work indicate that thetransfer of irrigation water use between tributary river valleys along the Murray Rivercan have relatively large economic impacts due to change in water quality. Internalisingthese impacts into water trade may be an effective instrument of managing the problemof salinity in the Murray River.

Policy Instruments for Groundwater Management for Agriculture and Nature

P. J. G. J. HELLEGERS and E. C. van Ierland


In the Netherlands nature reserves are suffering from desiccation, due to lowering of thegroundwater level. The desiccation problem is a typical externality problem, since theactions of agriculture, namely increased drainage and shallow groundwater extraction,impose costs on nature. Insight into the suitability of various policy instruments toachieve optimal groundwater level and extraction management in the Netherlands is,however, missing. In this paper the suitability of a broad range of policy instruments forgroundwater level and extraction management is studied. Special attention is paid to thepotential role of economic instruments. It becomes clear that unambiguous statementsabout the suitability of policy instruments to reduce the desiccation problem are hard tomake without an empirical analysis, since the suitability differs locally considerably dueto region specific circumstances. Nevertheless from our theoretical analysis it becomesclear that economic instruments are suitable for groundwater extraction management,since it is a typical demand-based problem. The current historical groundwaterextraction rights systems together with the low groundwater prices encourage low-valueagricultural groundwater usage and restrict the transfer of water. Current extractionpolicies are therefore economically inefficient and provide fewer incentives for theadoption of modern irrigation technologies than does a system that considersexternalities in the price of water or diverts water away from agricultural use to non-agricultural, while encouraging trading. It becomes also clear that the use of economicinstruments for groundwater level management will be complicated in practice becausegroups of farmers will be affected. Nevertheless it seems that economic instruments canaffect the outcome of the negotiations about the groundwater level in the governingbody of the water-boards.

Emission Taxes and Monitoring Costs: Does it Really Make a DifferenceWho Bears the Costs and What is Being Monitored?

A. KAMPAS and B.White


This paper examines how an optimal Pigouvian tax can be modified to account formonitoring costs under various monitoring schemes. In particular, we examine the caseswhere the regulator can either monitor firms’ emissions, inputs or output in order to

27

assess their compliance. Our results indicate that when the regulator bears themonitoring costs the optimal Pigouvian tax should always exceed marginal damage.The rationale behind such an observation is that an emission tax greater than themarginal damage costs forces some firms to exit the industry and saving the regulatormonitoring costs. The choice between various monitoring regimes depends on therelationship between the ratio of marginal costs and the ratio of returns to scale of theemission and production functions .By contrast, under self-reporting schemes the optimal Pigouvian tax may be greater,equal or even smaller than the marginal damages. With self-reports, the regulator’s roleis to verify firms’ reports by conducting a compliance audit and to impose a penalty tonon-compliant firms. In the extreme case of truth-telling agents the optimal Pigouviantax is equal to the marginal damages regardless of the kind of monitoring regimeadopted. However, if firms report false amount of emissions to evade taxes, therelationship between the optimal Pigouvian tax and the marginal damages depends onthe relative magnitude of the expected increase in the non-compliance penalty and theexpected decrease in audit costs.

Transboundary Pollution from Consumption in a Reciprocal Dumping Model

M. Ö. KAYALICA and O. Kayalica


We develop a reciprocal dumping type of model in which we analyse transboundarypollution from consumption and optimal tax polices. There are two countries and twofirms (one in each country). Each firm produces a homogeneous god to be consumed inboth markets. Pollution occurs during the consumption of gods by both societies. Thepolicy instruments available to the governments are a consumption tax and a tariff onthe imports of that god. Thus, we investigate the trade and domestic policies thegovernments may use to control the domestic pollution. Using the above specification,we examine the consequences of two policies reform on welfare: a bilateral uniformreduction and a revenue neutral reform. It is found that starting with non-cooperativesolutions, an infinitesimal uniform reduction is unambiguously Pareto improving foreach country. This is because the gain from an increase in consumer surplus due toreform is larger than the loss in the tax revenues of the governments. In the revenueneutral reform case, welfare of the countries will be Pareto improving if theconsumption tax is increased while the import tariff is reduced. Moreover, we comparethe two countries to see under which conditions a country imposes higher tax or tariffthan its trading partner. Our results suggest that the conditions satisfying higherconsumption taxes in a country also satisfy lower tariffs in that country. In particular,we found that a country will impose higher consumption tax and lower tariff rates if itshas either of the following: higher marginal disutility from pollution, higher unit costs,or smaller demand than those in the other country. We also show that an increase in themarginal disutility of pollution increases the consumption tax, while decreasing theimport tariff.

28

Strategic Environmental Policies in the Presence of Foreign Direct Investment

M. Ö. KAYALICA and S. Lahiri


We analyse strategic environmental standards in the presence of foreign directinvestment (FDI). A foreign firm located in a host country competes with a domesticfirm in another country to export a homogeneous good to a third country. We thenextend the model to allow the number of foreign firms to be endogenous. The FDIequilibrium is determined by equating the profits of the foreign firms to an exogenouslevel representing the reservation level of profit which the foreign firms could obtain ifthey invested in alternative countries. Pollution occurs during production by both typesof firms, and both firms posses a technology for abating pollution they generate. Thegovernments in the two countries can force the firms to decrease the level of pollutionthey generate though quantitative restrictions on pollution. Using the specificationabove, we examine the equilibrium levels of quantity restrictions on pollution when thegovernments act in a non-cooperative and cooperative fashion. We find that the non-cooperative equilibrium always generates a higher level of pollution per unit of output.Furthermore, it is found that starting from the non-cooperative equilibrium, a smalluniform reduction in the pollution allowance is strictly Pareto-improving. The aboveresults also hold in both the benchmark an general model. When there is no entry andexit in the FDI market, the FDI host country always sets more severe policy, than theother country, as the government in the former does not have to consider the effect ofthe outflow of FDI and the level of profits. However, under free entry and exit offoreign firms, the FDI host country may apply lower standards under both non-cooperative and cooperative equilibrium.

Using a Second Price Sequential Auction to Determine Who Will Supply andWho Will Pay for Environmental Water

R. J. Supalla, B. KLAUS and O. Yeboah


The Platte River system consists of the North Platte and South Platte Rivers. The NorthPlatte begins in North Central Colorado, passes through South Central Wyoming,crosses all of Nebraska and joins the Missouri River at Omaha, Nebraska. The SouthPlatte begins in East Central Colorado and joins the North Platte River at North Platte,Nebraska. The Platte system provides irrigation water to over one million acres,supplies 300 MW of hydroelectric power, supports in excess of two million visitor daysof recreation each year and provides critical habitat for fish and wildlife. The reach ofthe Platte River between Lexington and Grand Island, Nebraska, which is often calledthe Middle Platte or the Big Bend Reach, is especially critical ecologically. It providescritical habitat for several protected species, including the Interior Least Tern, PipingPlover and Whooping Crane. The Middle Platte also serves as a migration staging areafor thousands of Sandhill Cranes and each year is the site of an internationallyacclaimed bird watching spectacle.

29

The central resource management problem is that there is insufficient water available inthe Platte system to meet all competing demands. This is most starkly indicated by theU.S. Fish and Wildlife Service in their opinion that 500 hm3 per year of additional wateris needed to meet endangered species needs for the Big Bend reach. Endangered speciesrequirements, as defined by the U.S. Fish and Wildlife Service, essentially preclude anywater consuming action that constitutes a federal nexus. This means that U.S. ForestService leases in Colorado cannot be renewed; that Wyoming cannot pursue additionalupstream water storage projects that would increase consumptive use; and that thepublic power districts in Nebraska cannot get a long-term hydropower license from theFederal Energy Regulatory Commission unless some accommodation of the competingdemands can be made.In this analysis we use a second price sequential auction mechanism to analyze who willsupply the interim target flows of 173 hm3. We assume that water is auctioned insequential blocks of 17 hm3, with the bidding for each separate block continuing untilall parties chose not to lower the prevailing low bid. The terms of the auctionmechanism are such that before the auction begins all parties commit to provide apredetermined share of budgeted costs and to collectively meet a predeterminedendangered species water requirement.Simulated results under three assumed political compensation policies suggest that asecond price sequential auction may be a useful tool for negotiating a multi-governmental agreement on who will supply environmental water. The opportunity forsupply prices to exceed the real supply cost and the second-price effect significantlyincreased budgeted costs and substantially changed the cost distribution between theplayers, but caused only a modest increase in real welfare costs for all playerscombined. A small increase in the real welfare cost that enables a mutual supplyagreement is probably preferable to no agreement at all.

The Political Economy of Strategic Environmental Policywhen Waste Products Are Tradable

J. Cassing and T. KUHN

Plenary SERE: PS 1

A particularly contentious environmental issue between nations, and between regionswithin nations, is a policy attitude toward the disposal of waste, such as landfills, andother potentially harmful industrial by-products like spent nuclear fuel. An internationaland interregional policy issue arises because many of these unwanted products arethemselves tradeable commodities.In this paper we explore the implications of the possibility of “trade in trash” on optimalenvironmental policy and on the ramifications of a stronger or weaker environmentallobby across regions or nations. Hence, we have constructed a multiple stage gamecomposed of a market stage and a policy stage. Waste is generated as a by-product ofproduction and, since we assume an international market for waste for waste products toexist, might be exported to some less developed countries to get rid of any damageslinked to waste exported – usually big industries like the chemical and nuclear industryor central processors for plastic wastes and such kind – small firms in less developedcountries – are pure price takers. On the policy level countries are large to be able toaffect the terms of trade for waste products. Thus, naturally, governments get involved

30

into Nash competition where politicians are taken to maximise a political supportfunction reflecting lobbying activities of environmentalists as well as industrialists.In general, we find that environmentalists do not necessarily succeed in pushing stricterenvironmental policies nor do industrialists in pushing weaker due to the fact thatlobbying may be offset by the term of trade effect. As it happens, even strongerenvironmental sentiment in all nations need not lead to increased protection of theenvironment

Optimal Use of a Renewable Resourceunder Uncertainty and Conservation Motive

G. LAFFORGUE


We study the effects of amenities and uncertainty on the optimal exploitation of arenewable natural resource. First we observe that amenities lead to a more conservativebehaviour in terms of resource exploitation. In a second part, we show that ecologicaluncertainty leads society to develop the opposite behaviour, thus reducing its expositiontowards risk. Finally, three analytical examples are introduced to compute and comparethe stationary solutions in the different cases. Using a Gompertz natural regenerationfunction and a proportional risk, we show that the amenities effect is stronger if andonly if the stochastic fluctuations are not too large.

Long Term Effects of Water Markets : Investing or Rent-Seeking ?

R. LAHMANDI AYED and M. S. Matoussi


Water markets have been imagined by economists to reallocate water, a resourcebecoming every day more scarce, while ensuring traditional users’ approval. Previousauthors have proved that water markets result in the short-term in the selection of themost efficient users, thus in a more efficient allocation of the precious resource. Thisvery advantage in environmental terms may have highly negative social impacts.Mainly, a certain number among inefficient farmers put out of the productive sector,will certainly move to cities increasing rural exodus with all the expected urban, social,political and economic problems.However, in the long term, the implementation of water markets is expected to incitefarmers to invest in water saving technologies to sell the water saved. But this questionhas not been debated in previous literature as it deserves to be, at the theoretical as wellas the empirical level. Suppose that farmers have the possibility of improving theirperformances through adequate investments. The main concern of the paper is to answerfrom a theoretical viewpoint to the following question: Do water markets encourageprivate investments? In the affirmative case, water markets tend to repair their negativeshort-term effects by long-term ones.The few empirical observations on the question are contradictory. Some authors notedconcerning the Chilean water market experience, that farmers invest in new irrigation

31

techniques which conserve better the resource, resulting in improving the totalproduction without requiring new costly mobilisations. Other authors observe on thecontrary concerning the same experience, that water use efficiency remains at itstraditional level in most of Chile.This contradiction makes necessary a theoretical examination of the question. In asimple model, we consider the investment decisions of inefficient farmers within andwithout a water market. The comparison between the two situations does not lead tosimple results. In some cases, water markets foster private investments and in othercases, they encourage rent-seeking behaviour. Specifically, when the number of initiallyinefficient farmers is low, the number of investing farmers is lower within than withouta water market.This apparently surprising result may be interpreted as follows. A water market resultsin two contradictory effects. On the one hand, it sends signals on the true value of waterthrough the equilibrium price, inciting farmers to conserve water through adequateinvestments. On the other hand, the possibility of water resale may dissuade farmersfrom investing and producing. When the number of potentially water vendors is toolow, the second effect is the winner; water is very scarce, making water resale alwaysmore profitable than investment and production. These results call at least for morecaution about water markets.

Cost Benefit Analysis in the Context of Indigenous Water Rights:A Critique of the U.S. Water Resource Council Principles and Guidelines

L. LIPPER, J. P. Merchant, D. Zilberman and J. Bass


Cost benefit analysis (CBA) is one of the most widely used economic tools for publicpolicy decision-making, particularly in the area of water resources investment. Themethodology is derived from the basic principals of welfare economics and as such, is anormative exercise used to assess the desirability of one or more investment options.However, the actual desirability of an investment depends on its purpose, which mayinclude both monetary and non-monetary objectives. A proposed investment should beassessed according to how well it meets the stated purpose of the investment, given theconditions or constraints under which it would be implemented. Methodologicalassumptions underlying a CBA thus need to be adjusted on a case-by-case basis toreflect the respective objectives and constraints of the investment. In analyses that seekto assess the capacity of an investment to address wider social objectives, as opposed tosimply maximizing profit, it is necessary to consider the ways in which culturalpreferences impact the values assigned to goods and services and to adjust theconstraints and prices used in the analysis accordingly.In this paper we examine these issues by analyzing the application of CBAmethodologies to the problem of quantifying Native American water rights in the U.S.We start with a description of the legal and institutional context under which thequantification of Native American water rights has arisen, and how this gave rise to theneed for conducting a CBA of the practicably irrigable acreage on Tribal lands. Wethen turn to an assessment of one CBA methodology which has been advocated for usein the context of water rights quantification: the Water Resource Council’s Principlesand Guidelines (P&Gs). This methodology was developed by the U.S. Government

32

for the purposes of assessing public water resource investments. We contrast theobjectives and constraints of an analysis demanded for the determination of practicablyirrigable acreage on Native American Reservations with those for which the P&Gs weredeveloped, and highlight the ways in which this divergence should be manifested inspecific aspects of the CBA methodology. We conclude the paper with a discussion ofother areas in which CBA is applied in water resource planning and the specificadaptations they may require in designing an appropriate methodology.

Water Markets Under Pressure: Lessons fromthe Recent Experience of the Colorado Big Thompson Project

M. L. LIVINGSTON


The Colorado Big Thompson (CBT) project, managed by the Northern Colorado WaterConservatory District, is often cited as an exemplary water market. The district allowstemporary or permanent, marked based, water transfers. Water is routinely reallocatedbetween uses and across considerable geographic area. The district facilitates theseexchanges so that transactions costs are minimized.The last decade has brought serious pressure to the project and its market policies. InNorthern Colorado, both the population and the economy are growing much faster thanthe generally robust national economy. While the agricultural economy is suffering dueto low product prices, there have been substantial increases in municipal and industrialdemand for water. At the same time, both use and non-use environmental demands areincreasingly at issue. The result has been unprecedented increases in water prices andmarket based water transfers. The scale of reallocation has brought into question thetrue benefits and costs of the water market.This paper analyses the recent experience of the CBT in the context of establishedenvironmental economic theory. The analysis reveals considerable insights into theextent and limits of actual water markets. The issues treated include: the central role ofinfrastructure, price differentials in sub-markets, the unexpected position of farmers insupport or opposition of market transfers, distributional issues and community basedefforts to influence allocation, the plight of environmental interests, and the politicalconsiderations that may “trump” the market.The last section reports on recent innovations in the market, and speculates about whatremains to be done in order to improve operational water markets. Innovative attemptsto preserve agricultural supplies in the face of growing municipal demand are related aswell as creative methods for getting environmental values represented in the market.Conclusions are drawn about needed evolutions in water markets and water policy inorder to approach the ideal of perfect competition in water allocation. The principlesdiscussed are evaluated in terms of their relevance to water markets in other areas.

33

Sustainable Growth in a North-South Trade Model

F. Cabo, G. Martín Herrán and M.P. MARTÍNEZ GARCÍA


We present a model with two different regions, North and South, that trade each other.The South specializes in a resource intensive good while the North specializes in acapital intensive good. The North-South trade and the management of natural resourcesare modeled in a dynamic way so that sustainable economic growth can be analyzed.The existence of balanced paths that allow a sustained growth in the North and apermanent growth of consumption in the South without exhausting Southern naturalresources is proved. The transitional dynamics to a balanced path is also studied.

Water Quality Protection through Irrigation Management

J. Albiac Murillo, S. Uku Karaj and Y. MARTÍNEZ MARTÍNEZ


This paper analyzes the effects of water management and irrigation systems on cropyields and water pollution, in an area located in the Monegros-Flumen irrigation districtin Huesca (Spain). The analysis is performed using water and nitrogen crop responsefunctions, which are estimated with the EPIC crop growth package. The estimation ofresponse for the crop activities incorporates information on local climate, soils, cropmanagement and irrigation systems.The relationship between yields and water and nitrogen input use is examined, in orderto quantify the pollution reduction cost faced by farmers. The costs depend on theparticular crop and the pollution abatement measure, and information on these costs isimportant to design efficient pollution abatement measures.

Index Number Analysis of Namibian Water Intensity

S. MASIREMBU and J. Stage


Index number analysis is a method frequently used to examine causes of changes inenergy intensities in an economy. This method can also be applied to other areas whereit is of interest to examine why materials use intensities change. An obvious example iswater use in countries where water is scarce and it is important to understand the drivingforces behind changes in aggregate water use. However, this method has not beenapplied to water previously.This study uses index number analysis to study changes in aggregate water intensity inNamibia between the years 1993 and 1996. The analysis shows that while aggregatewater intensity decreased during this period, this was entirely due to decreases in the

34

water intensities of individual sectors in the economy. At the same time, however, thecomposition of the economy was shifting towards more water-intensive sectors, so thataggregate water intensity declined less than it would have done if the relative sizes ofthe country’s economic sectors had remained the same.Although the time period studied is brief, due to lack of data, the analysis does suggestthat there is scope for using methods from energy economics to analyse water use aswell. Even this fairly simple analysis provided a more thorough understanding of thefactors determining the overall water use in an economy than merely analysing thewater intensities of individual sectors would have done.

Product-Market Competition in the Water Industry:Voluntarily Nondiscriminatory Pricing

R. Föllmi and U. MEISTER

Plenary IWREC: PI 1

This paper presents an attempt to create competition in the water market by means ofdirect competition. We argue that the usual liberalisation device, competition for themarket by franchise bidding, is problematic due to the particular features of the waterindustry. Our approach proposes the implementation of product market competition, i.e.competition in the market. In such a situation several water utilities using a single set ofpipes compete for customers in the same area. Since the water industry is oftencharacterized by local networks, we consider a simple model, where competition isintroduced between vertically integrated, neighbouring water suppliers that connecttheir networks.Even without any regulation, we show that: (i) An inefficient incumbent will give up itsmonopoly position and lower the access price far enough so that the low-costcompetitor can enter his home market. (ii) Efficiency of production will rise due toliberalization. (iii) In contrary to prejudicial claims, investment incentives are notdestroyed by the introduction of competition. Investments of low-cost firms may evenincrease.

Bargaining Institutions under the Clean Development Mechanism

K. MILLOCK and J. C. Hourcade


The Clean Development Mechanism (CDM) offers abatement cost savings under theKyoto Protocol by allowing credits for emission reductions obtained in signatorydeveloping countries. The efficiency of the mechanism as well as its contribution to thesustainable development of the host country will depend upon the bargaining set-up.The contribution of this article is to suggest a modelling framework for privatecontracting under the CDM that takes into account the particular institutional features ofclimate change policy. We specified the objectives of the host country and the investingcountry and derived the resulting emission reductions and technology choice in statusquo.

35

We then assessed the impact of the CDM and the allocation of the resulting certifiedemission reductions (CERs). An important policy conclusion is that the allocation ofpart of the CERs to the host country constitutes a means to delegate the global objectiveto the host country. The crediting of emission reductions and the use of foreign co-financing contribute to make investments in projects with clean technology moreattractive to the host country.Next, we derived the outcome of bargaining under full information and compared thiswith the social objective of the Conference of the Parties to the UNFCCC. Here, theresults follow from the Coase theorem: the outcome is neutral with respect to theallocation of the initial right to make a bargaining proposal.The final part of the article introduces three different forms of incomplete informationthat can affect the CDM: private information of the host party on its baseline emissions,private information of the investor about its true valuation of the project, and finally,shared uncertainty about the actual amount of emission reductions obtained under theproject. We show that the distortion introduced from the two asymmetric informationparameters suggest that the initial right to make a CDM offer should be allocated to theparty with the best information about the other party's private preferences. Thus, if thevariability in the host country's emissions scenario is greater than the variability of theinvestor's private valuation of the project, it is most efficient to allocate the initial rightof project proposal to the host country.

Natural Monopoly and the Environmental and Health Harms Question:Some Basic Concepts

G. MONDELLO


This paper aims at providing some new insights on the analysis of natural monopolyquestion. It focuses on the management of environmental and Health risks. The costs ofpotential damages are included in the cost function of firms. This allows to extend thedefinition of costs subadditivity to the coverage of risk accident. It is shown thatmonopoly power may be enforced by the capacity of big firm to devote more means tocover safety.

Residential Water Demand: An Empirical AnalysisUsing Co-Integration and Error Correction Techniques

R. Martínez Espiñeira and C. NAUGES


The purpose of this paper is to measure the short- and long-run effect of the price ofwater on residential water consumption using time-series observations on four Spanishtowns. This study is innovative in two aspects. This is the first time that co-integrationand error-correction techniques are used in the field of water consumption. Moreover,the estimation of the demand function using intraannual data is new in this geographicalarea. Consumption and price series, found co-integrated in the sense of Granger, are

36

then used as a partial correction term in an Error Correction Model. We find estimatesof the price elasticity that range from -0.39 to -0.84 in the short run and from -0.21 to -0.77 in the long run, and a significant seasonal effect. The relatively high short-runelasticities can be explained by the high frequency of observations and by the fact thatthe price increases during the period analysed came mainly through the fixed part of thetariff.

Incentives and Institutions of Water Market Transfers in South Africa :Two Case Studies

W.L. NIEUWOUDT, R. M. Armitage and G.R. Backeberg


A discriminant analysis of water transfers in the Lower Orange River showed that waterrights were transferred to farmers with the highest return per unit of water applied;producing table grapes; and with high-potential arable "outer land" without water rights.Only unused water was transferred while water saved (through adoption ofconservation practices) was retained possibly for security purposes. Riparian rightspractised in South Africa, Australia and in the Eastern USA spread the risk ofvariability equally amongst share holders but provide less certainty to water users thanprior appropriation rights as practiced in the Western USA. An interesting feature ofthis study is that South African farmers have adapted to this institutional uncertainty inriparian water law. A second study in the Nkwaleni Valley in Northern Kwa-Zulu-Natalfound that no water market had emerged despite the scarcity of water in the area. Nowilling sellers of water rights existed. Demand for institutional change to establishtradable water rights may take more time in the second area since crop profitability inthis area is similar for potential buyers and non-buyers. In a water market both buyersand non-buyers have the incentive to adopt water-saving technology as water has anopportunity cost. Any transaction costs will drive a wedge between buyers and non-buyers of water rights, consequently forcing buyers to be even more frugal users ofwater rights. In the second study potential buyers adopted more water saving technologythan potential non- buyers. Farmers generally use all their water rights in the secondarea and may be unwilling to sell water rights for land developed as this involvessacrificing capital investment in this land. Transaction costs appear larger than benefitsfrom market transactions. The New South African Water Act of 1998 changed theownership of water from private to public. This constitutional change may by itselfnot impede the development of a water market as South African farmers will still haveprivate usufructuary rights to water while water itself remains public property. InSouth Africa the diverted use (water actually applied)is transferred and not theconsumptive use (water taken up by plants).Under certain conditions where return flowis high the transfer of diverted use could lead to increased consumptive use of waterinstead of releasing water.

37

Urban Water Institutional Transformation in Kenya

J. ONJALA


Our discussion in this paper develops along several lines. Our main objective is toexamine the role of water sector institutional environment in the performance of LocalAuthorities urban water provision in Kenya. We do this by looking at (i) the foundationand the interplay between the national level institutions, (ii) the changes in themacroeconomic policies, strategies and how their transformation over time has interactedwith the local authorities operations. Lastly, commercialization has recently been widelyperceived to be the solution to Kenya’s current urban water utility failures. We attempt toexplain the process, the short experience in four urban areas in Kenya and why we thinksome important steps were (are being) overlooked.

Ambos Nogales: A Tale of Two Cities and Water Management on the U.S. –Mexico Border

D. E. OSGOOD and G. B. Frisvold


Bilateral negotiations between the United States and Mexico over the scale, location,and financing of water treatment facilities serving border twin cities frequently breakdown, leaving water pollution and supply uncertainty problems unresolved.Agreements reached have been reactive to immediate health emergencies, limited inscope, and have failed to address market failures that contributed to the environmentalproblems in the first place. New institutions created to address environmental concernsover NAFTA have helped both nations plan, build, and finance new facilities in a morecoordinated and proactive manner. Yet, the goal of developing locally self-financingmunicipal water systems on both sides of the border has remained elusive. To illustrate,we use a case study of negotiations over water resources shared by Nogales, Arizonaand Nogales, Sonora.

Climate Change Potential Impacts on Mediterranean Tourism

M. PEMPETZOGLOU and S. Karagianni


The scope of this paper is to examine whether and to which extent climate change hasinfluenced tourism as well as to analyse the future potential impacts of the new climatestatus on the tourist activity of the European Mediterranean countries. There is clearevidence that global and regional temperatures are raising. Tourism is one of the largestand most important contributors to the southern European economies. Climate isworldwide recognized as a primary factor influencing tourist development and it isexpected that temperature changes will affect tourism both directly and indirectly. Our

38

empirical findings suggest that temperatures have not affected tourist activity yet but thechanging weather patterns will probably affect tourism in the future.

Segmentation of the Tourist Market in the Costa Brava Area: EnvironmentalPreferences and Other Variables.

C. REIG GARCIA and G. Coenders


The aim of this paper is to examine which are the preferences and perceptions oftourists who visit the Costa Brava, emphasising the weight of specific aspects ofenvironmental quality.The data were obtained from a survey carried out in summer 1999 in the Costa Brava.The conjoint analysis method allows us to determine the importance of the attributeslow price, clean beaches and quiet environment. Multiple correspondence analysis andcluster analysis allows us to establish tourist typologies according to willingness to payfor environmental quality, perceived environmental quality, environmental relatedactivities done during the holiday and stated motives of satisfaction.The findings suggest that the importance of environmental quality differs for differentgroups of tourists and that it is related to the kind of destination selected.

California’s Budding Water Market:An Analysis of Willingness-to-Pay and Accept-Compensation

M. E. RENWICK


This paper explores the potential for socials gains from intersectoral trade in water userights between agricultural and urban uses in California. This research focuses ondefining the parameters of California’s budding water market by estimating themarginal willingness-to-pay (MWTP) for water by residential uses in urban areas andthe marginal willingness-to-accept compensation (MWAC) by agricultural users in thecontext of heterogeneous water use rights and location difference in MWTP. Estimatesof MWTP and MWAC are examined to help place bounds on the potential market-clearing price for water in a developing market and provide a better understanding ofthe rents available to cover transactions costs and factors limiting market performance.

Conjunctive Use of Surface Water and Groundwater with Quality Considerations

C. ROSETA PALMA

Plenary IWREC: PI 1

Deterministic models of conjunctive surface and groundwater management aren't muchmore complicated than typical groundwater-only management models under simple

39

assumptions. However, when water quality problems exist, the fact that there are twoalternative sources of water gains a new significance, as there is no guarantee that theywill be of comparable quality. Thus the benefit from using one unit of surface watermay not be the same as that of one unit of groundwater. This paper analyses theimplications of considering a conjunctive ground and surface water system where waterquality varies according to source, with and without uncertainty in hydrologicalparameters.

International Cooperation in Pollution Control

S. J. RUBIO and B. Casino

Plenary SERE: PS 1

In this paper the profitability and stability of an International Environmental Agreementamong N identical countries that emit a pollutant are studied. The static analysis showsthat only a bilateral agreement could be self-enforcing independently of the number ofcountries and the gains coming from cooperation. We also show that this result occursboth when the coalition takes as given the emissions of nonsignatories and when it actsas the leader of the game. In the second part of the paper a differential game is proposedin order to analyse the stock externality due to accumulated emissions. For an open-loopNash equilibrium similar results to the ones obtained for the static model are derived.

The Use of New Management Tools to Integrate Tourisminto Sustainable Management of Coastal Areas

R. SARDÁ


Tourism is one of the main socio-economic drivers behind changes in coastal zones.Tourism in the EU accounts for 5,5% of GDP and provides seven million full-time jobs.However, the figures for individual member states and regions can be much higher,such as in Spain where tourism accounts for 10,5% of GDP and 9,5% of employment.In 1999, we started a research project focused in the search for the best possibleprotocols to assure and Environmental Sustainable Tourism Development (ESTD) inthe Costa Brava (Girona, Catalunya-Spain). The main goal of this project was to fullyassess the environmental implications of mass tourism in coastal areas of Europe and todevelop integrated management tools and self regulation practices to support policymakers, local operators, and environmental managers in the task of integrating theeconomic development of tourism with environmental actions at appropriate planninglevels.Following the Pressure-State-Impact-response methodology (P.S.I.R.), we havegathered all the available information in the study area. Using this information we havebeen working in decision support methods and tools. We are basically supporting threeof them through a Pilot Experience in la Selva Marítima (Southern Costa Brava): a) thedevelopment of an environmental-based report, b) the use of GIS for the analysis offuture scenarios, and c) the use of graphic models to evaluate the environmental

40

condition of the ecosystems. In this presentation we will explain such methodology andwe will give some information about impacts and tendencies.

Maori, the Crown and Evolving Property Rightsfor Rivers and Streams in New Zealand

F. SCRIMGEOUR and Q. Way


Settlement of land claims between Maori and the Crown have received prominence inNew Zealand in recent times, often causing heated debate. A greater challenge lies inthe settlement of Maori claims to rivers, several of which are now in the negotiationstage with the Crown through the Office of Treaty Settlements (OTS).Land claims, although they can be extremely complex, are relatively simple whencompared with the river claims. The complexities of river claims include difficultiessurrounding ownership of rivers, their constituent parts, and the interests of a range ofstakeholders in the continued management of the river. This article examines thehistorical and contemporary context of the river claims, and analyses the implicationsand issues surrounding potential solutions to these claims.

Does Factor Price Risk Encourage Conservation?

G. Moreno and D. SUNDING

Plenary IWREC: PI 4

The paper examines the influence of the factor price risk on the adoption ofconservation technology. Within a stochastic putty-clay framework, the effect ofincreasing risk on input use efficiency is shown to depend on the magnitude of theelasticity of resource utilization. Econometric results on the choice of water usetechnology confirm the main hypotheses, and suggest that while price risk can have alarge influence on the adoption of conservation technology at the micro-unit level, theeffect of increasing price risk on aggregate efficiency is ambiguous.

Irrigator and Rural Community Perceptions of Water Reform in Australia

J. G. TISDELL and J. G. Ward


In 1994 the Council of Australian Governments (COAG) reformed the management ofwater in Australia to meet the needs of a maturing water economy. The reforms have ledto changes in water management, in particular in the definition of rights to water, waterpricing, trading of water entitlements and the accounting of environmental flows. Thispaper reports the findings of a survey of irrigators and community attitudes to andopinions on water reform in the Goulburn Broken catchment of Victoria, Australia.

41

The survey found general agreement among the irrigators and community members thatwater reform was necessary and that rights to water should be separated from rights toland and such rights should be traded independently. There is general agreement amongirrigators that water entitlements will be more secure and have higher certainty ofsupply following the reform process. Respondents indicated that the rules of trade andthe allocation of water should be such that they promote the greatest happiness of thegreatest number. Adoption of the notion of water as a chattel is evolving, but there is ageneral consensus that to date the community has been poorly informed about thereform process. The CAP, a restriction on water entitlements imposed in 1996, has notmade a realised impact on the majority of surveyed irrigators or community members.As expected, where it has impacted is in water availability and usage, decreasedproduction and limited future development. In terms of meeting environmental flowobjectives, options that involved a reduction in water entitlements that provided forpossible reversibility of habitat degradation are equally ranked, and ranked above noreduction in water allocations for environmental needs

Irrigation Management in a Dynamic Soil-Water-Yield System

U. Shani, Y. TSUR and A. Zemel

Plenary IWREC: PI 4

We study irrigation management in a dynamic soil-water biomass-yield system. Wefind that the optimal irrigation policy is to bring the soil moisture in the root zone tosome optimum target level as rapidly as possible, to keep it at that level until some timeprior to harvest, and then to cease irrigation. The target level and the stopping time varyacross crops, soil types, climatic conditions and economic (price) factors, but the MostRapid Approach structure of the optimal irrigation policy persists under generalcircumstances. An empirical example demonstrates the performance of the optimalpolicy in actual practice.

The Impact of the CAP and Full Cost Pricing on Spanish Irrigation

J. C. VERGÉS


The Common Agricultural Policy (CAP) affects irrigation indirectly in theMediterranean where high value crops and extensive use of groundwater already pay afull cost price with little relevance of CAP subsidies. CAP subsidies are very relevant tocereals where irrigation is only possible with subsidised surface water, the preferredproduction in continental Spain with three quarters of the consumption for irrigation.Cereal production is in regression saving enough water equivalent to 20% of French or25% of Portuguese irrigation. Given that the CAP continues to adapt to world prices thetrend in lower cereal output and less pressure on irrigation will continue in continentalSpain.The Water Framework Directive of 2000 will be a positive influence in a Mediterraneanclimate. Currently there is a gulf between full cost pricing of groundwater and

42

subsidised surface water. New surface infrastructure is being built at one third of the fullcost price for the farmer. Despite this 70% subsidy, it is only economic for high valuedcrops. Full cost pricing of surface water requires a switch to market oriented agriculture.Big landowners in continental Andalusia cultivate subsidised crops at subsidised priceswhen the climate permits a wider range of crops like continental Catalonia with no biglanded interests. Full cost pricing could induce more renting of land in Andalusia and aswitch to intensive agriculture as in the Mediterranean coastline. The revenue savedfrom subsidising water can be used to aiding small farmers and marginal land inconformity with new CAP proposals. It is essential that full cost pricing by basinauthorities tie in to specific budget plans by regional authorities for regionaldevelopment with the taxes saved from water subsidies by the central Government.Environmental protection will increase both by the funding available from basin chargesat full cost and also from the induced saving of water consumption as subsidised usersnow face full costs. The reduction in extensive irrigation will directly reduce non-pointsource pollution.Full cost pricing is an essential policy instrument for the Common Agricultural Policyin the Mediterranean.

Land Use and Pollution Abatement in the Case of Agricultural DrainageUsing a Land Classification System - A Dynamic Approach

À. XABADIA, R. U. Goetz and D. Zilberman


A wide range of environmental problems caused by agricultural production has beenidentified where heterogeneity of land has an important role, because the environmentaldamage depends on the allocation of the activity. Examples of these problems are theform of soil erosion or water logging and the contribution of a large share of pollutants,such as mineral nutrients, mineral salts, pesticides, and heavy metals. The design ofefficient environmental policies to improve environmental quality, however, ishampered by the difficulty of monitoring and measuring the individual emissions due tohigh costs or technical unfeasibility. In this situation, standard instruments, like taxingor regulating the emissions directly, are not a viable option for a regulator. Instead,indirect policies focusing on output, particular inputs, or the environmental quality haveto be employed. Indirect policies, however, are more often than not imperfectsubstitutes for policies directly targeting the emissions.Within this second best context some authors have proposed the following threesimultaneous criteria for evaluating indirect environmental policies: a) targetability, b)enforceability and c) direct impact on environmental quality. In the case of agriculturalproduction, the first criterion requires that an efficient policy induces site or timespecific responses. The second criterion calls for an agency to ensure compliance atacceptable costs, and the last criterion suggests choosing a policy where controlvariables are as closely related as possible with environmental quality. In meeting thesecriteria, there is a tradeoff in the design of indirect policies. For example, policies thatare well targeted based on control variables directly linked to environmental qualitytend to be more difficult to enforce. On the other hand, policies that can be easilyenforced, e.g. input taxes, require uniformity across sites, and/or control variables thatare indirectly related to environmental quality.

43

This paper stresses the point that additional site specific information helps to overcomethis tradeoff. In particular, we propose using a Land Classification System (LCS) in theform of a site vulnerability index to design a pollution restoration policy spatially andtemporally differentiated. The LCS subsume all the characteristics that can affectpollutant emissions (soil composition, soil slope, distance to the receptor body...) in anindex that indicates the vulnerability of each site to emissions.As an example for this approach, we use the concept of LCS to analyze the optimalallocation of two different irrigation technologies over time and space to reduce waterlosses to deep percolation and run-off, since the choice of the irrigation technology canseriously affect the leaching of pollutants. We determine the optimal size and locationof the production area located within an agricultural region, and the intensity ofproduction, that is the optimal level of applied water. The area that is not utilized foragricultural production can be considered as the optimal size and location of the riparianzone. Moreover, we consider off-site treatment of the pollutant in order to reduce theconcentration of the pollutant at the receptor. In order to induce the socially optimalland-use we analyze two policies: land-use taxes and input taxes. The results show thatboth policies are able to establish the socially optimal outcome. The results alsodemonstrate that the optimal intertemporal policy depends on the sensitivity of theabatement cost function to changes in the stock of pollution.A very essential part of this paper consists of the novel approach in presenting a two-stage solution to a spatial-intertemporal optimal control problem, allowing to derive thequalitative characteristics of the solution better and more easily than a single-stagesolution. The first stage consists of the optimal spatial allocation, and the second stagecomprises the intertemporal optimization of the solution of the first stage. The twostages are linked by the common shadow price, allowing a relationship to form betweenoptimal short-run and long-run land demand function. Most importantly, it allows thenecessary changes needed to transform a spatially optimal, yet static, environmentalpolicy analysis to an intertemporally and spatially optimal environmental policy.

Water Conservation Policy and the Yield Effect of Modern Irrigation Technologies

D. ZILBERMAN and D. Sunding

Plenary IWREC: PI 4

Economists have suggested that incentives (higher water prices and technology subsidy)for adoption of modern irrigation technologies would lead to water conservation andincrease productivity of water. These proposals encounter skepticism from engineerswho argue that modern irrigation technologies only increase irrigation efficiency andthat water that is deep percolating, or run-off, will be recycled within the system. Thus,the only contribution conservation technologies make is that by increasing water useefficiency they save pumping costs and increase control of water use, but otherwise thegains from adoption of modern irrigation technologies are minimal.This paper argues that increased precision associated with modern irrigationtechnologies have a yield effect that is above and beyond the increased water useefficiency effect and the magnitude of this effect determines under what conditionsadoption is worthwhile. The paper suggests a more complete modeling irrigation systemthat takes into account the possible substitution between water and capital and itrecognizes the role of technologies is in increasing water productivity. With this in

44

mind, we will develop a more general theory of irrigation technology choice thatenables identifying the factors that lead to adoption and the patterns of adoption as newtechnologies increase yields. We will have a simulation to illustrate some of our resultsand this simulation will explain some perplexing data from California.

45

LIST OF PARTICIPANTS

Albiac Murillo, José[email protected] Economía Agraria, SIA-DGA,P.O.Box 727Zaragoza 50080Spain

Ansuategui, [email protected] de Ciencias EconomicasBilbaoSpain

Arto Olaizola, Iñ[email protected] of the Basque CountryManuel Iradier 70, 1ºCVitoria 1005Spain

Ballester, [email protected] of EconomicsUniversity of GironaCampus MontiliviGirona 17071Spain

Banfi, [email protected] of Energy Policy and Economics(CEPE)Swiss Federal Institutes of TechnologyETH Zentrum, WECZürich 8092Switzerland

Beare, [email protected] Johnson StreetNarrabunclah, Act, 2604Australia

Béné, [email protected] of PortsmouthLocks way RoadSouthsea Honts P04 8JFUnited Kingdom

Bennett, [email protected] National UniversityNational Centre for DevelopmentStudiesCanberra ACT 0200Australia

Berga, [email protected] of EconomicsUniversity of GironaCampus MontiliviGirona 17071Spain

Bjornlund, [email protected] of South AustraliaDept Water Policy and Law GroupCity West Campus North TerraceAdelaida, SA 50Australia

Bové, Miquel [email protected] of EconomicsUniversity Rovira i VirgiliAvda. UniversitatReus 43204Spain

Brozović, [email protected] of California, BerkeleyDepartment of Agricultural andResource EconomicsBerkeley CA 94720USA

46

Busquets, [email protected] of EconomicsUniversity of GironaCampus MontiliviGirona 17071Spain

Calatrava, [email protected] de Organización deEmpresas y ComercializaciónUniversidad Politécnica de CartagenaETSIA CartagenaAvda. Alfonso XIII 48Cartagena 30203Spain

Chakravorty, [email protected] of EconomicsEmory UniversityAtlantaUSA

Chandra Bahadur [email protected] ReporterNarayani WeeklySundhara, POB:Kathmandu 4890Nepal

Coenders, Germà[email protected] of EconomicsUniversity of GironaCampus MontiliviGirona 17071Spain

Costa, [email protected] Católica PortuguesaPortugal

Easter, [email protected] of Minnesota1954 Hyke St.St Paul, Minnesota 55113USA

Elnaboulsi, Jihad [email protected]é de Franche ComtéAv. De l'observatoireBesancon 25030France

Escapa, [email protected] del País VascoLehendakari Aguirre,83Bilbao 48015Spain

Fock, [email protected] of Applied SciencesBrodaerstr. 2Neubrandenburg 17039Germany

Föllmi, [email protected] for Empirical Research inEconomicsUniversity of ZurichBluemlisalpstrasse 10Zurich CH-8006Switzerland

Fuentes Castro, [email protected] PubliqueGrignonFrance

Funes López, Mò[email protected] Arruga 37 3rARoses 17480Spain

47

García, Marí[email protected] Pública de NavarraDepartamento de EconomiaCampus Arrosadia s/nPamplona, 31006Spain

Garrido, [email protected] de Economía y CienciasSociales Agrarias,Universidad Politécnica de MadridETSIACiudad UniversitariaMadrid 28040Spain

Garzón, M. Begoñ[email protected] del País Vasco-EHUDepto Fundamentos del AnálisisEconómico FCCEEAvda. Lehendakari Aguirre, 83Bilbao 48015Spain

Goddard, Haynes [email protected] of Cincinnati/U.S.Environmental Protection AgencyDepartment of EconomicsUniversity of CincinnatiCincinnati, Ohio 45221USA

Goetz, Renan [email protected] of EconomicsUniversity of GironaCampus MontiliviGirona 17071Spain

Gómez Limón, José [email protected]. Agricultural EconomicsUniversity of ValladolidAvda. Madrid, 57Palencia 34071Spain

Grau, [email protected] School of the EnvironmentDuke University2030 13th Street NWWashington DC 20009USA

Guàrdia Gasull, Josep [email protected] of EconomicsUniversity of GironaCampus MontiliviGirona 17071Spain

Guirado Garanger, Esterxurry,[email protected] Grau 4Girona, 17003Spain

Gutiérrez López, Martín [email protected] Nacional Polytechnique deGrenobleAv ConstituyentesBP 53 CEDEX 9Grenoble 38041France

Heaney, [email protected] Bureau of Agricultural andResource Economics AFFAGPO Box 1563Camberra Act, 2601Australia

48

Hellegers, Petra [email protected] Economics ResearchInstitute (LEI)P.O.Box 297032502 LS The HagueThe Netherlands

Kampas, [email protected]@aias.grM.L.U.R.I.-Rural Economic Modelling& Environmental EconomicsMacaulay Land Use Research InstituteCraigiebucklerAberdeen AB15 8QHUnited Kingdom

Karimi, Mohammad [email protected] of economic bariz tairebehjati alley no 40faiz abadsanandaj, 66146Iran

Kayalica, M. Ö[email protected] UniversityDepartment of EconomicsAdapazariTurkey

Keane, [email protected] University of Ireland, GalwayDept. EconomicsIreland

Kislev, [email protected] University of JerusalemDept. of Agricultural EconomicsP.O.B 12Rehovot 76100Israel

Klaus, [email protected] of NebraskaDept Economics and AgriculturalEconomics 368 CBALincoln, NebraskaUSA

Kuhn, ThomasT.Kuhn@WirtschaftDepartment of Economics and BusinessAdministrationChemnitz University of TechnologyChemnitz 9107Germany

Laffont, Jean [email protected] d'Economie IndustrielleUniversité des Sciences SocialesManufacture des Tabacs21 alee de BrienneToulouse, 31000France

Lafforgue, [email protected] and GREMAQUniversité de Toulouse 1, Manufacturedes Tabacs, Bât. F21 Allée de BrienneToulouse 31000France

Lahmandi Ayed, [email protected] Polytechnique de TunisieTunisia

Lipper, [email protected]

Livingston, Marie [email protected] of Northern ColoradoDept of Economics, UncGreeleyColorado 80525USA

49

Martínez García, María [email protected] de MurciaCampus de EspinardoMurcia 30100Spain

Martínez Martínez, [email protected] Unidad Economía AgrariaC/ Juan Pablo Bonet 7-4ºZaragoza 50006Spain

Masirembu, [email protected] of Environmental AffairsMinistry of Environment and TourismPrivate Bag 13306WindhoekNamibia

Meister, UrsUniversity of ZürichZürich CH 8006Switzerland

Millock, [email protected], Cnrs45 bis, avenue de la Belle GabrielleNogent-sur-Marne, 94736France

Mogas Amoros, [email protected] Rovira i Virgili.Departament D'EconomiaAvda. UniversitatReus, 43204Spain

Mondello, Gé[email protected] CNRSValbonne 6560France

Monturiol Ros, [email protected]ça Mela Mutermilch,2 2º 1ºGirona, 17001Spain

Moriscot Gazules, [email protected]. Sardana 16Figueres, 17600Spain

Nauges, Cé[email protected] des tabacs,21 Allee de BrienneToulouse, 31000France

Nieuwoudt, [email protected] of NatalPrivate Bag X01Scottsville 3209Pietermaritzburg 3209South Africa

Onjala, [email protected] For Development ResearchGammel Kongevej 5Copenhagen V DK - 1610Denmark

Osgood, [email protected] of Ag. and Resource EconomicsUniversity of ArizonaPO Box 210023Tucson, Arizona 95721USA

Pempetzoglou, [email protected] of Macedonia156, Egnatia Str.Thessaloniki 54006Greece

50

Raurich, [email protected] of EconomicsUniversity of GironaCampus MontiliviGirona 17071Spain

Reig Garcia, [email protected] of EconomicsUniversity of GironaCampus MontiliviGirona 17071Spain

Renwick, [email protected] of MinnesotaWater Resources Center, 173 McNealHall1985 Buford StreetSt. Paul MN 55105USA

Rigall, [email protected] of EconomicsUniversity of GironaCampus MontiliviGirona 17071Spain

Romans Canuda, [email protected] i Forgues 3 3rAFigueres, 17600Spain

Ros Martínez, [email protected]. correus 70,Platja de MontgóL'escala, 17130Spain

Rosas Doblado, [email protected] el Pilós 6La Bisbal d'empordà, 17100Spain

Roseta Palma, [email protected] de Aveiro - SAGEICampus de SantiagoAveiro 3810Portugal

Rubio, Santiago [email protected] of ValenciaDepartment of Economic AnalysisAvda. de los Naranjos s/n.Edif Deptamental OrientalValencia 46022Spain

Ruby, [email protected] Policy Branch Agriculture andAgri-Food Canada930 Carling Ave, Room 6109Ottawa, OntCanada

Sardá, [email protected] d'Estudis Avançats deBlanes(C.S.I.C)Camí de Sta Bàrbara s/nBlanes 17300Spain

Saurina, [email protected] of EconomicsUniversity of GironaCampus MontiliviGirona 17071Spain

51

Scrimgeour, [email protected] of WaikatoDepartment of Economics, Universityof WaikatoPrivate Bag 3105HamiltonNew Zealand

Solé, [email protected] of EconomicsUniversity of GironaCampus MontiliviGirona 17071Spain

Sunding, [email protected] BerkeleyDepartment of Agricultural andResource Economics207 Giannini HallBerkeley CA 94720USA

Tisdell, [email protected] UniversityNathanBrisbaneQueensland 4111Australia

Tobarra González, [email protected] de Ciencias de la Empresa(UPCT)Paseo Alfonso XIII 50Cartagena, 30203Spain

Tsur, [email protected] University of JerusalemDept. of Agricultural EconomicsP.O.B 12Rehovot 76100Israel

Uku, [email protected] de Economia AgrariaZaragoza 50006Spain

Vergés, Josep [email protected] Catalana d'EconomiaDiputació 3808198 La FlorestaSpain

Ward, John GriffithUniversity CRCEast Creek RoadNathanQLD 4111Australia

Xabadia, À[email protected] of EconomicsUniversity of GironaCampus MontiliviGirona 17071Spain

Zemel, [email protected] Gurion UniversityJacob Blaustein Inst. for DesertResearchSede Boker Campus 84990Israel

Zilberman, [email protected]. Berkeley2728 elmwoodBerkeley CA 94705USA

Documents

7th Conference of the International Water and Resource ...Authors: M. Özgur Kayalica, Sajal Lahiri Presenter: M. Özgur Kayalica 21.00h: Conference Banquet at the restaurant l’Alvareda