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A Smart Market for Impervious Cover

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  • John Raffensperger
  • Thomas Cochrane

Abstract

When farmland or undeveloped ground is covered over, runoff can cause environmental damage and flood risk. Policymakers want to compare the economic improvement of new development to the costs produced by the associated environmental impacts. In this paper, we propose a smart market in impervious cover. A smart market is a periodic auction which is cleared by an optimization model, a linear program (LP) in this case. The LP constraint coefficients come from a hydrological model. The LP objective coefficients come from users’ bids. To operate the auction, local government would appoint an auction manager, who would be responsible for maintaining the hydrological model and the LP, for operating the auction, and for maintaining the desired environmental standards. At regular intervals, the auction manager would accept bids over the internet, solve the corresponding LP, and announce the results. By LP duality, the smart market prices impervious cover at the opportunity cost to society, adjusted for location, the sensitivity of environmental features, and the incremental value of the development as indicated by bids. This design uses relevant hydrological information, and accepts community input on the desired environmental standards (avoiding the tragedy of the commons). The auction creates incentives to remove impervious cover, especially near environmentally sensitive areas. The proposed system nearly eliminates transaction costs associated with trading development rights. Copyright Springer Science+Business Media B.V. 2010

Suggested Citation

  • John Raffensperger & Thomas Cochrane, 2010. "A Smart Market for Impervious Cover," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 24(12), pages 3065-3083, September.
    • Handle: RePEc:spr:waterr:v:24:y:2010:i:12:p:3065-3083
    DOI: 10.1007/s11269-010-9595-y
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    References listed on IDEAS

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    1. James Murphy & Ariel Dinar & Richard Howitt & Steven Rassenti & Vernon Smith, 2000. "The Design of ``Smart'' Water Market Institutions Using Laboratory Experiments," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 17(4), pages 375-394, December.
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    3. Walls, Margaret & McConnell, Virginia, 2004. "Incentive-Based Land Use Policies and Water Quality in the Chesapeake Bay," RFF Working Paper Series dp-04-20, Resources for the Future.
    4. Bhaskar Chakravorti & William W. Sharkey & Yossef Spiegel & Simon Wilkie, 1995. "Auctioning the Airwaves: The Contest for Broadband pcs Spectrum," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(2), pages 345-373, June.
    5. Chakravorti, Bhaskar, et al, 1995. "Auctioning the Airwaves: The Contest for Broadband PCS Spectrum," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(2), pages 345-373, Summer.
    6. K. Geetha & S. Mishra & T. Eldho & A. Rastogi & R. Pandey, 2008. "SCS-CN-based Continuous Simulation Model for Hydrologic Forecasting," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 22(2), pages 165-190, February.
    7. Fabrizio Ravagnani & Alberto Pellegrinelli & Marco Franchini, 2009. "Estimation of Urban Impervious Fraction from Satellite Images and Its Impact on Peak Discharge Entering a Storm Sewer System," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 23(10), pages 1893-1915, August.
    8. Robert L. Graves & Linus Schrage & Jayaram Sankaran, 1993. "An Auction Method for Course Registration," Interfaces, INFORMS, vol. 23(5), pages 81-92, October.
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    Cited by:

    1. Raffensperger, John F., 2011. "Matching users' rights to available groundwater," Ecological Economics, Elsevier, vol. 70(6), pages 1041-1050, April.
    2. Syezlin Hasan & Line Block Hansen & James C. R. Smart & Berit Hasler & Mette Termansen, 2022. "Tradeable Nitrogen Abatement Practices for Diffuse Agricultural Emissions: A ‘Smart Market’ Approach," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 82(1), pages 29-63, May.

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