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Risk Aversion and Urban Water Decisions

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  • Freebairn, John W.
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    Abstract

    Application of the product characteristics model and the finance portfolio choice model are used to illustrate the important effects of risk aversion held by decision makers in making decisions in the urban water markets. Decision makers face uncertainty about water demand, water inflows and supply costs, and about government policy. Relative to risk neutrality assumed in many models, risk aversion changes decisions about the management of available water supply infrastructure, and about the form and timing of supply augmentation options. Recognition of heterogeneity of buyer preference with respect to risk suggest efficiency gains from offering a variety of cost-security of supply characteristic packages to water buyers.

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    File URL: http://purl.umn.edu/124206
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    Bibliographic Info

    Paper provided by Australian Agricultural and Resource Economics Society in its series 2012 Conference (56th), February 7-10, 2012, Freemantle, Australia with number 124206.

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    Date of creation: Feb 2012
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    Handle: RePEc:ags:aare12:124206

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    Postal: AARES Central Office Manager, Crawford School of Public Policy, ANU, Canberra ACT 0200
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    Keywords: Community/Rural/Urban Development; Resource /Energy Economics and Policy;

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    1. Hugh Sibly & Richard Tooth, 2008. "Bringing competition to urban water supply ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(3), pages 217-233, 09.
    2. David Hensher & Nina Shore & Kenneth Train, 2006. "Water Supply Security and Willingness to Pay to Avoid Drought Restrictions," The Economic Record, The Economic Society of Australia, vol. 82(256), pages 56-66, 03.
    3. Hoffmann, Mark & Worthington, Andrew & Higgs, Helen, 2006. "Urban water demand with fixed volumetric charging in a large municipality: the case of Brisbane, Australia," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(3), September.
    4. R. Quentin Grafton & Tom Kompas, 2007. "Pricing Sydney water ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 51(3), pages 227-241, 09.
    5. Bethany Cooper & John Rose & Lin Crase, 2012. "Does anybody like water restrictions? Some observations in Australian urban communities," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 56(1), pages 61-81, 01.
    6. Jasper M. Dalhuisen & Raymond J. G. M. Florax & JHenri L. F. de Groot & Peter Nijkamp, 2003. "Price and Income Elasticities of Residential Water Demand: A Meta-Analysis," Land Economics, University of Wisconsin Press, vol. 79(2), pages 292-308.
    7. Sibly, Hugh & Tooth, Richard, 2008. "Bringing competition to urban water supply," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(3), September.
    8. Donna Brennan & Sorada Tapsuwan & Gordon Ingram, 2007. "The welfare costs of urban outdoor water restrictions," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 51(3), pages 243-261, 09.
    9. Geoff Edwards, 2006. "Whose Values Count? Demand Management for Melbourne's Water," The Economic Record, The Economic Society of Australia, vol. 82(s1), pages S54-S63, 09.
    10. Anonymous, 2006. "Rural Water Use and the Environment: The Role of Market Mechanisms," Commissioned Studies 8020, Productivity Commission.
    11. Productivity Commission, 2008. "Towards Urban Water Reform: A Discussion Paper," Research Papers 0801, Productivity Commission, Government of Australia.
    12. R. Quentin Grafton & Michael B. Ward, 2008. "Prices versus Rationing: Marshallian Surplus and Mandatory Water Restrictions," The Economic Record, The Economic Society of Australia, vol. 84(s1), pages S57-S65, 09.
    13. R. Quentin Grafton & Michael B. Ward, 2010. "Dynamically Efficient Urban Water Policy," Centre for Water Economics, Environment and Policy Papers 1013, Centre for Water Economics, Environment and Policy, Crawford School of Public Policy, The Australian National University.
    14. Hughes, Neal & Hafi, Ahmed & Goesch, Tim, 2009. "Urban water management: optimal price and investment policy under climate variability," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 53(2), June.
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    Cited by:
    1. Edwards, Geoff W., 2012. "The Desalination Plant, The North-South Pipeline And The Welfare Of Melburnians," 2012 Conference (56th), February 7-10, 2012, Freemantle, Australia 124292, Australian Agricultural and Resource Economics Society.

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