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An Economic Framework for Sharing Water Within a River Catchment

Author

Listed:
  • R. J. Farquharson

    (The University of Melbourne, Australia)

  • J. W. Freebairn

    (The University of Melbourne, Australia)

  • J. A. Webb

    (The University of Melbourne, Australia)

  • M. J. Stewardson

    (The University of Melbourne, Australia)

  • T. Ramilan

    (The University of Melbourne, Australia†Massey University, New Zealand)

Abstract

A framework for sharing a limited quantity, but also a variable quantity, of water between irrigation and the environment to maximize social wellbeing is developed and illustrated. The optimal water allocation equates the marginal social value of water across different uses. A simplified illustration allocates water from the Goulburn River in northern Victoria, Australia, between environmental water to increase numbers of Golden Perch (GP) fish stocks and irrigation demand for water for dairy farmers. The value of water for GP is developed using a combination of fish numbers as an ecological response function of water and Choice Model estimates of willingness to pay by Victorian households for improved fish stocks. Irrigation demand for water by dairy farmers is developed using a Linear Programming study. The complex ecological response functions require a numerical search model to evaluate the socially efficient allocation of water between the different uses. The shadow price of water as optimally allocated between the environmental and agricultural uses is developed as seasonal water availability varies. Further development of the framework could include identifying dependencies within the ecological responses and incorporating multiple ecological and agricultural responses in an expanded model. The policy implications include information on the socially efficient allocation of limited water between irrigation and the environment and the value of water when shared optimally between uses.

Suggested Citation

  • R. J. Farquharson & J. W. Freebairn & J. A. Webb & M. J. Stewardson & T. Ramilan, 2017. "An Economic Framework for Sharing Water Within a River Catchment," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 3(03), pages 1-19, July.
    • Handle: RePEc:wsi:wepxxx:v:03:y:2017:i:03:n:s2382624x16500399
    DOI: 10.1142/S2382624X16500399
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    References listed on IDEAS

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    1. Farquharson, Robert J. & Ramilan, Thiagarajah & Stewardson, Michael & Beverly, Craig & Vietz, Geoff & George, Brendan & Dassanyake, K. & Sammonds, M., 2011. "Water sharing for the environment and agriculture in the Broken catchment," 2011 Conference (55th), February 8-11, 2011, Melbourne, Australia 100547, Australian Agricultural and Resource Economics Society.
    2. John Freebairn, 2011. "Allocating Limited Water," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 44(2), pages 225-232, June.
    3. Mac Kirby & Jeff Connor & Mobin-ud Din Ahmad & Lei Gao & Mohammed Mainuddin, 2015. "Irrigator and Environmental Water Management Adaptation to Climate Change and Water Reallocation in the Murray–Darling Basin," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 1(03), pages 1-31.
    4. Alec Zuo & Sarah Ann Wheeler & W.L. (Vic) Adamowicz & Peter C. Boxall & Darla Hatton-MacDonald, 2016. "Measuring Price Elasticities of Demand and Supply of Water Entitlements Based on Stated and Revealed Preference Data," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 98(1), pages 314-332.
    5. Sarah Wheeler & Henning Bjornlund & Martin Shanahan & Alec Zuo, 2008. "Price elasticity of water allocations demand in the Goulburn-Murray Irrigation District ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(1), pages 37-55, March.
    6. Kolstad, Charles, 2011. "Intermediate Environmental Economics: International Edition," OUP Catalogue, Oxford University Press, edition 2, number 9780199732654.
    7. Akter, Sonia & Grafton, R. Quentin & Merritt, Wendy S., 2014. "Integrated hydro-ecological and economic modeling of environmental flows: Macquarie Marshes, Australia," Agricultural Water Management, Elsevier, vol. 145(C), pages 98-109.
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