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Assessing the economic viability of alternative water resources in water-scarce regions: Combining economic valuation, cost-benefit analysis and discounting

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  • Birol, Ekin
  • Koundouri, Phoebe
  • Kountouris, Yiannis

Abstract

This paper demonstrates a comprehensive methodology for assessing the viability of an environmental management plan that has long-run economic and ecological impacts. The case study under consideration is the implementation of a water-resource management plan in a water-scarce region of the world, namely Cyprus. Specifically, this plan proposes to replenish a depleting aquifer with treated wastewater. The proposed methodology first identifies the key stakeholder groups (farmers and the general public) who are hypothesized to derive economic values (benefits) from implementation of this plan, and then uses stated-preference methods to capture the total economic value of these benefits. Benefits are aggregated over the relevant populations of these stakeholder groups and weighed against the total costs of implementing the plan in a long-run cost-benefit analysis (CBA). An econometrically estimated time-declining trajectory of discount rates is used for the CBA in order to assess the long-run sustainability of the plan. The results reveal that the net benefit trajectory estimated with the time-declining discount rate takes one and a half to three times as long to come to a plateau compared to the constant discount rates of 3.5 and 6%, emphasizing the importance of using declining discount rates and capturing the entirety of the benefits generated by such plans. This methodology is particularly recommended for providing much needed information to support the implementation of the EU Water Framework Directive, which advocates the use of CBA with consideration of the notion of sustainability for achieving the "good water status" for all European waters.

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Bibliographic Info

Paper provided by International Food Policy Research Institute (IFPRI) in its series IFPRI discussion papers with number 908.

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Date of creation: 2009
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Handle: RePEc:fpr:ifprid:908

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Keywords: Aquifer recharge; Treated wastewater; Total economic value; Choice experiment; Long-run cost benefit analysis; Declining discounting;

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References

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Citations

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Cited by:
  1. Ekin Birol & Sukanya Das, 2010. "The Value of Improved Public Services : An Application of the Choice Experiment Method to Estimate the Value of Improved Wastewater Treatment Infrastructure in India," Development Economics Working Papers 23062, East Asian Bureau of Economic Research.
  2. Francisco Alcon & Julia Martin-Ortega & Francisco Pedrero & Juan Alarcon & M. Miguel, 2013. "Incorporating Non-market Benefits of Reclaimed Water into Cost-Benefit Analysis: A Case Study of Irrigated Mandarin Crops in southern Spain," Water Resources Management, Springer, vol. 27(6), pages 1809-1820, April.
  3. Phoebe Koundouri & Osiel Gonzalez Davila, . "The Use of Ecosystem Services Approach in Guiding Water Valuation and Management: Inland and Coastal Waters," DEOS Working Papers 1334, Athens University of Economics and Business.
  4. Phoebe Koundouri & Nikos Papandreou & Mavra Stithou & Osiel Davila, 2013. "A Value Transfer Approach for the Economic Estimation of Industrial Pollution: Policy Recommendations," DEOS Working Papers 1315, Athens University of Economics and Business.

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