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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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    1. Yacov Tsur, 2009. "On the Economics of Water Allocation and Pricing," Annual Review of Resource Economics, Annual Reviews, vol. 1(1), pages 513-536, September.
    2. Tsur, Yacov & Dinar, Ariel, 1997. "The Relative Efficiency and Implementation Costs of Alternative Methods for Pricing Irrigation Water," The World Bank Economic Review, World Bank, vol. 11(2), pages 243-262, May.
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    8. Baerenklau, Kenneth A. & Schwabe, Kurt & Dinar, Ariel, 2014. "Do Increasing Block Rate Water Budgets Reduce Residential Water Demand? A Case Study in Southern California," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170019, Agricultural and Applied Economics Association.
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    12. Tsur, Yacov & Zemel, Amos, 2014. "Steady-state properties in a class of dynamic models," Journal of Economic Dynamics and Control, Elsevier, vol. 39(C), pages 165-177.
    13. Weber, Matthew A. & Meixner, Thomas & Stromberg, Juliet C., 2016. "Valuing instream-related services of wastewater," Ecosystem Services, Elsevier, vol. 21(PA), pages 59-71.
    14. Mara Thiene & Yacov Tsur, 2013. "Agricultural Landscape Value and Irrigation Water Policy," Journal of Agricultural Economics, Wiley Blackwell, vol. 64(3), pages 641-653, September.
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    Cited by:

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    2. Neha Deopa & Daniele Rinaldo, 2024. "Quickest Detection of Ecological Regimes for Natural Resource Management," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(5), pages 1327-1366, May.
    3. 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.
    4. 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.
    5. 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.

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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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