Transcript Role of Economics

Chapter 15
Water Resources
--Water is a biological necessity for human existence
--Freshwater supplies for humans and ecosystems come
from surface water and accessible groundwater aquifers
--Recent development in desalination technology and
increases in the scarcity of freshwater have turned many
communities toward the ocean for freshwater supplies
--The eastern half of the U.S. is humid and well watered,
while the western half is arid or semiarid
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1. Water Use in the United States
Table 15-1, p.288
• Water withdraws per capita per day were 1,506 gallons
in 1960, 1,916 in 1980, and 1,430 in 2000
• Agriculture (irrigation) and industrial uses (power
plants) account for the biggest withdraws; they both
decreased from 1980 to 2000
• Per capita domestic water use = (public supply + rural
domestic self-supply) / population = (43.3 billion gallons
per day + 3.6 billion gallons per day) / 285.3 million =
___ gallons per day, this is in 2000; it is 128 in 1960 and
163 in 1980
• About ___% of water withdrawals are from groundwater
aquifers and ___% from surface waters
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Some Interesting Facts
• A substantial portion of surface water
withdraws in costal states are saltwater used as
cooling water in power plants and industrial
cooling
• Irrigation is largely a western phenomenon,
which increases the per capita withdraws for
those regions
• More industrial states have larger water use
quantities
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Contemporary Water Resource Problems in the U.S.
• In the east, there is a continuing need for the effective
management of large water systems, to adapt to the demands of
growing urban and suburban population
• Management and preservation of coastal and inland wetlands for
the effective functioning of water system has become a major
issue
• In the east, many groundwater aquifers have been contaminated
from chemicals or from saltwater intrusion; in the west, many
aquifers have been exploited at rates far exceeding recharge rates
• In the west, urban areas are searching for new sources of water
to support rapidly growing populations. One possibility is to
transfer water that normally goes to agricultural irrigation
• Growing demands for instream water services (like boating,
fishing, ecosystem protection, and scenic values) must be
balanced with traditional demands for water withdrawals
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2. Water Law in the United States
Surface Water
• The first European settlers along the northeastern U.S.
coast in the 17th century applied English legal doctrine
to water resources
– The rights to the use of water (other than for
irrigation which was a right reserved to the
government) belonged to those people who owned
the banks of the streams or lakes; this is known as
riparian water rights (the Latin word riparius means
“situated on the banks of a natural watercourse or
body of water”)
– Each riparian landowner had the rights to a
reasonable use of the water in the stream
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Surface Water (con’t)
• When settlers ventured into the western part of what
was to become the U.S., given the arid conditions of the
region, the law of prior appropriation was developed
– It gives water rights to the first person who appropriates it and
makes beneficial use of it; also called “first in time, first in right”
– While riparian water law tends to see water rights holders as
equal in status, prior appropriation creates priorities such that
first users have rights that take precedence over those coming
later (senior and junior water rights)
– Most of small- and medium-sized rivers were fully appropriated
by the end of the 19th century and the result was a widespread
system of privately built diversion ditches, small
impoundments, and the like; during the first 2/3 of the 20th
century, the federal government sponsored construction of
large dams and canals
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Groundwater
http://pubs.usgs.gov/of/1993/ofr93-643/
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Groundwater
• Groundwater is extracted from underground aquifers; in
many cases, they are hydrologically interconnected to
surface water resources, recharging from, and
discharging to, water in streams and lakes
• Early English groundwater law, which provided the
foundation for early U.S. law, conferred the rights of
absolute ownership to those who held surface rights
over an aquifer
– This allowed any landowner to pump as much as they
wished out of the aquifer
– Open-access externalities: when one person pumps water
without restriction, it can adversely affect the water
supply available to others using the same aquifer
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3. Water Pricing
Average Cost Pricing
• Most domestic water in the U.S. is supplied by public
water supply companies
• A cost-based pricing rule: set prices so that revenues
cover costs (profits are thought to be inappropriate for
public enterprises)
– Average-cost pricing: the total costs of delivering
water are divided by the total quantity of water
delivered; and the unit water price set accordingly
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Average Cost Pricing (con’t)
Figure 15-1, p.294
• Figure 15-1 shows a supply and demand curve for water
for a community water supply system
– Water is regarded as a normal economic good
– Efficient quantity is q1 and efficient price is p1.
Suppose the water company charges p1 : total cost of
water supply = c + d; total revenue = a + b + c + d.
The company runs a profit (which is a + b)
– To avoid profits, the utility usually prices below p1,
like p2 (called average-cost pricing): total cost = c + d +
e + f + g; total revenue = b + c +e. It can find the
point where total cost = total revenue, or d + f + g =
b; not efficient—from q1 to q2, the utility will produce
some water for which MB < MC
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4. Water Rights Transfers and Markets
Water Transfers
Figure 15-5, p.299
• The potential gains from trade would lead to
adjustments where resources shift out of the relatively
low-valued uses and into the higher-valued uses
• Figure 15-5 shows two water demand functions:
municipal and industrial (M&I) water used in an urban
area; water used in irrigation in the nearby farming area
– Because of the way water rights have been allocated
in the past, the city is consuming q1 while irrigators
are applying q4; marginal value of water for M&I is
$80, that for agriculture is $15, gains from trade exist
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Water Transfers (con’t)
– If an acre-foot of water is reallocated from agriculture
to M&I, the net gain = $80 – $15 = $65
– As long as these marginal valuations differ,
reallocation will continue to have positive net benefits
– Total gain is maximized by reallocating to the point
where the marginal valuations are equal (at a price of
$30; and q2 – q1 = q4 – q3)
– Market transactions occur because willing sellers
meet willing buyers and trade at a price agreed to by
both participants (price should be between two
marginal valuations); buyers gain (a + b) from
purchasing q2 – q1; the sellers lose (c + d) from selling
q4 – q3; total net gain = (a + b) – ( c + d)
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5. Instream Flow Protection
Optimal Instream Flows
Figure 15-6, p.306
• The curve labeled B shows benefits, starting to the right
of the origin. Some minimal amount of water is
necessary before any benefits appear at all. The
function increases, reaching a maximum at a1, and then
declines, because larger flows actually reduce most
instream values
• The curve labeled C shows costs; it rises to the right and
becomes increasingly steep. The primary costs of
instream flows are the values of forgone water
withdrawals
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Optimal Instream Flows (con’t)
• The instream flow that maximizes total benefits is a1
• The instream flow that maximizes net benefits is a*; at
a*, ___ (the slope of the B curve) = ___ (the slope of
the C curve)
• The model’s application in any real-world case is
difficult:
– Getting necessary data to determine the
relationships is hard
– There is more than just one type of instream
benefit, and the optimal flow rates may differ
among the benefit types
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