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Optimal water pricing: Accounting for environmental externalities

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  • Tsur, Yacov

Abstract

A pricing-based mechanism that implements the optimal water policy while accounting for environmental externalities is developed. The analysis is presented in the context of a comprehensive water economy, stressing the tradeoffs between water use in the provision of ecosystem services vs. other uses. A distinction is made between conveyed and instream environmental water, which turns out to have important policy implications. It is shown that the allocation of instream water can be implemented by properly incorporating the (marginal) instream value of water within the shadow (in situ) price of natural water. The regulation of conveyed environmental water requires a quota-price combination. An example based on Israel's water economy is presented.

Suggested Citation

  • Tsur, Yacov, 2020. "Optimal water pricing: Accounting for environmental externalities," Ecological Economics, Elsevier, vol. 170(C).
    • Handle: RePEc:eee:ecolec:v:170:y:2020:i:c:s0921800919304239
    DOI: 10.1016/j.ecolecon.2019.106429
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    References listed on IDEAS

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    Cited by:

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    2. Qing Zhou & Yali Zhang & Feng Wu, 2022. "Can Water Price Improve Water Productivity? A Water-Economic-Model-Based Study in Heihe River Basin, China," Sustainability, MDPI, vol. 14(10), pages 1-18, May.
    3. Mengdi Li & Yaoping Cui & Yaochen Qin & Zhifang Shi & Nan Li & Xiaoyan Liu & Yadi Run & Oliva Gabriel Chubwa, 2021. "Estimating the Impact of Ecological Migrants on the South-to-North Water Diversion in China," IJERPH, MDPI, vol. 18(23), pages 1-16, November.
    4. Bajaj, Akshi & Singh, S.P. & Nayak, Diptimayee, 2023. "Are farmers willing to pay for groundwater irrigation? Insights from informal groundwater markets in Western Uttar Pradesh, India," Agricultural Water Management, Elsevier, vol. 288(C).
    5. Josef Slaboch & Lukáš Čechura & Michal Malý & Jiří Mach, 2022. "The Shadow Values of Soil Hydrological Properties in the Production Potential of Climatic Regionalization of the Czech Republic," Agriculture, MDPI, vol. 12(12), pages 1-21, December.

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    More about this item

    Keywords

    Water economy; Regulation; Pricing; Ecosystem services;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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