Coping with uncertainty in the inland navigation market: the impact of climate change
Low water levels are a potential threat to the inland navigation market. We develop a theoretical model to analyze low water-level uncertainty in the inland navigation market. A negative effect of climate change on welfare is expected due to the increase in cost per tonne of transport when low water levels occur more frequently. The market actors may take measures to adapt to the new situation of climate change. As an example, we study barge-size adjustments by barge operators. We show that in the current market (both before and after climate change) there are incentives to almost double the barge size. The reason that this still has not occurred may be explained by the long lifetime of barges that are currently in use. Thus, climate change does not provide a reason to stop the current trend towards larger barges. The only effect is that this trend towards larger barges will end at a lower size than would be the case without climate change. The public sector may also take measures to decrease the harm caused by climate change. In this study we consider an investment in infrastructure by means of dredging. We find a benefit-cost ratio higher than for this for investments both before and after climate change. Thus, both with and without climate change, welfare would increase if government intensifies dredging. After climate change, public adaptation may be more important than private adaptation when the situation is optimal before climate change. For the combined effect of barge-size adjustment and infrastructure investment, it can be concluded that the benefit in terms of expected welfare is 'super-additive' for the situation before climate and also for the situation after climate change when starting from the current situation. This 'super-additivity' property can be attributed to the opportunity for barge operators to hold even larger barges in the new environment where low water is less harmful for their capacities. However, for the situation after climate change, when starting from an optimized situation, super-additivity no longer holds.
|Date of creation:||Sep 2011|
|Date of revision:|
|Contact details of provider:|| Postal: Welthandelsplatz 1, 1020 Vienna, Austria|
Web page: http://www.ersa.org
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Solomou, S. & Wu, W., 1999.
"Weather Effects on European Agricultural Output 1850-1913,"
Cambridge Working Papers in Economics
9915, Faculty of Economics, University of Cambridge.
- Solomou, Solomos & Wu, Weike, 1999. "Weather effects on European agricultural output, 1850 1913," European Review of Economic History, Cambridge University Press, vol. 3(03), pages 351-373, December.
- Olaf Jonkeren & Piet Rietveld & Jos van Ommeren, 2007. "Climate Change and Inland Waterway Transport: Welfare Effects of Low Water Levels on the river Rhine," Journal of Transport Economics and Policy, University of Bath, vol. 41(3), pages 387-411, September.
- Feder, Gershon, 1980. "Farm Size, Risk Aversion and the Adoption of New Technology under Uncertainty," Oxford Economic Papers, Oxford University Press, vol. 32(2), pages 263-83, July.
- Saha, Atanu, 1994. "A two-season agricultural household model of output and price uncertainty," Journal of Development Economics, Elsevier, vol. 45(2), pages 245-269, December.
- Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, December.
- Levy, H & Markowtiz, H M, 1979. "Approximating Expected Utility by a Function of Mean and Variance," American Economic Review, American Economic Association, vol. 69(3), pages 308-17, June.
When requesting a correction, please mention this item's handle: RePEc:wiw:wiwrsa:ersa11p85. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gunther Maier)
If references are entirely missing, you can add them using this form.