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Water Storage Capacities versus Water Use Efficiency: Substitutes or Complements?

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  • Xie, Yang
  • Zilberman, David

Abstract

We investigate the economic relation between two common approaches to tackling water scarcity and adapting to climate change, namely expanding water-storage capac- ities and improving water-use efficiency. We build, analyze, and extend a simple model for capacity choices of dams, incorporating stochastic, dynamic control of water inventories and efficiency in water use. We show that expanding water-storage capacities could encourage water users to improve water-use efficiency and improving water-use efficiency could increase optimal dam sizes even if water-use efficiency improvement decreases the water demand. This possibility of complementarity is numerically illus- trated by an empirical example of the California State Water Project. Our analysis suggests that, if complementarity holds, resources should be distributed in a balanced way between water-storage expansions and water-use efficiency improvement instead of being invested on one activity while the other being ignored. Implications of this paper are applicable to the storage demand and consumption efficiency of other resources, for example, energy and food.

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  • Xie, Yang & Zilberman, David, 2015. "Water Storage Capacities versus Water Use Efficiency: Substitutes or Complements?," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205439, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea15:205439
    DOI: 10.22004/ag.econ.205439
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    Keywords

    Environmental Economics and Policy; International Development; International Relations/Trade; Public Economics; Research and Development/Tech Change/Emerging Technologies; Resource /Energy Economics and Policy; Risk and Uncertainty;
    All these keywords.

    JEL classification:

    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q27 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Issues in International Trade
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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