Brian H. Hurd, PhD, Professor
Dept. of Agricultural Economics & Agricultural Business
New Mexico State University
bhurd @ nmsu.edu
http://agecon.nmsu.edu/bhurd
“Assessing Costs and Benefits of Adaptation: Methods and Data”
First Regional Training Workshop – Capacity Building Programme on the Economics of Adaptation
Bangkok, Thailand
11 Mar - 14 Mar 2013
Lec 3. Using Hydro-Economic
Models to Estimate Adaptation
Costs and Benefits of Water Use
and Allocation Changes
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•
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Conceptual framework and key economic principles
Balancing water supply and demand
Optimizing water allocations across uses and places
REVIEW: Economy of Water Use
 Water as a factor of production, and as a
capital asset
 Opportunity costs and ‘scarcity’ value
 Static efficiency: managing surface water use
 Equalizing marginal net benefits across space
 Dynamic efficiency: Managing groundwater use
 Equalizing marginal net benefits across time:
 Inter-temporal tradeoffs and the concept of ‘user cost’ in
efficient water pricing
$
D
Economy of Water Use
S
Q
 When less water is availability than is desired,
scarcity exists and allocation decisions are required
 Welfare is maximized when no single user can
be made better off without harming another
 When marginal net benefits are equal for all users
 When marginal benefits equal marginal opportunity costs
 Opportunity costs in this cases include:

Foregone value of resources used in supplying
water that could have been used elsewhere (marginal cost)

Foregone value of water to other users (marginal scarcity cost)
 Lesson 1: Single Sector Market
 Lesson 2: Two Sector Market
Concepts of Value, Willingness to
Pay and Demand
Demand
(marginal value)
Concepts of Cost, Opportunity Cost
and Supply
Supply
(marginal cost)
Concepts of Cost, Benefit and Net
Benefit
Supply
(marginal cost)
Demand
(marginal value)
Economic Efficiency:
Single Sector Market
$
g
S
a
b
1
0
h
P*
c
D
d
i
Q1
Q0
Q*
Q
Efficient Allocations Across Users:
Adding demand curves horizontally
Economic Effect of ‘Drought’:
Efficient Response in Two Sector Market
Note: Illustrated demand curves are ‘net demand’ curves
or ‘marginal net benefit’ curves – that is after all
associated marginal costs (e.g., conveyance, treatment,
distribution) have been subtracted.
$($/m3)
D1
Δ Welfare ($)
1
D2
0
P1
P0
Dtotal
Q10
Q21 Q11
Q0 (normal)
Q20
Q1 (drought)
Qwater
Modeled Runoff and Allocation
Changes in the Lower Colorado Basin
P ercen t ag e C h an g e f ro m
B aselin e C lim at e
40%
20%
0%
[+1.5C +15%P]
[+2.5C +7%P]
[+5.0C]
-20%
-40%
-60%
Runoff
Agriculture
M&I
Rio Grande Water Sector Changes
Marginal Value of Water
A. Key characteristics and properties of water
• Water availability determines land suitability
• Agriculture is the major water user (globally
accounting for 70% of withdrawals)
• Irrigation of crops greatly improves the
productivity of land
• Transforming available water into usable
water is, in most cases, increasingly costly
(both financially and environmentally)
• Increases in the efficiency of water use can
significantly ‘stretch’ the services generated
by existing supplies
Water Use Profile: Selected Countries
http://earthtrends.wri.org/text/index.php
Based on AQUASTAT and other databases
Water and Food
Databases
AQUASTAT
AQUASTAT is FAO's global information system on water and agriculture.
It collects, analyses and disseminates data and information by country and by region. Its aim is to provide users
interested in global, regional and national analyses with comprehensive information related to water resources and
agricultural water management across the world, with emphasis on countries in Africa, Asia, Latin America and the
Caribbean.
CropWat
CROPWAT is a decision support system developed by the Land and Water Development Division of FAO. CROPWAT is
meant as a practical tool to help agro-meteorologists, agronomists and irrigation engineers to carry out standard
calculations for evapotranspiration and crop water use studies, and more specifically the design and management of
irrigation schemes.
Climwat
Climwat is a climatic database to be used in combination with the computer program CROPWAT. It includes data
from a total of 3262 meteorological stations from 144 countries.
http://www.fao.org/nr/water/infores_databases.html
Measuring benefits and costs
 Market measures of value
 Available data or survey of
Estimated market prices (costs)
* Estimated quantities produced (used)
 Estimation may require projections or
forecasts of changes in produced goods
and services, construction and operating
costs, financing costs etc.
Measuring benefits and costs
 Non-market measures of value
 Benefits (damages) from other sources of value

For example, environmental quality changes, impacts
on future generations, cultural or historic features, etc.
 Data and Methods
 Changes in property values, wages, health risks
(hedonic methods)
 Stated values from surveys (contingent valuation,
conjoint analysis)
 Observed recreation patterns (travel cost methods)
Merci’ Beaucoup!
Grazie
Gracias Thank You
Brian H. Hurd, PhD
Department of Agricultural Economics & Agricultural Business
Gerald Thomas Hall Rm. 350
New Mexico State University
Tel :
Email:
Web:
(575) 646-2674
bhurd@nmsu.edu
http://agecon.nmsu.edu/bhurd