IDEAS home Printed from https://ideas.repec.org/p/ags/aare08/6005.html
   My bibliography  Save this paper

Urban water management: optimal price and investment policy under uncertainty

Author

Listed:
  • Hughes, Neal
  • Hafi, Ahmed
  • Goesch, Tim
  • Brownlowe, Nathan

Abstract

Australian urban water utilities face a significant challenge in designing appropriate demand management and supply augmentation policies in the presence of increasing water scarcity and uncertainty over future dam inflows. This paper considers the design of optimal demand management and supply augmentation policies for urban water. In particular, scarcity pricing is considered as a potential alternative to the predominant demand management policy of water restrictions. A stochastic dynamic programming model of an urban water market is developed based on data from the Australian Capital Territory. The model involves an explicit consideration of uncertainty via a probability distribution over dam inflows. Given a specification of the demand and supply for urban water, state dependent optimal price and investment policies are estimated. The results illustrate how the optimal urban water price varies inversely with the prevailing storage level and how the optimal timing of investment differs significantly between rain dependent and rain independent augmentation options.

Suggested Citation

  • Hughes, Neal & Hafi, Ahmed & Goesch, Tim & Brownlowe, Nathan, 2008. "Urban water management: optimal price and investment policy under uncertainty," 2008 Conference (52nd), February 5-8, 2008, Canberra, Australia 6005, Australian Agricultural and Resource Economics Society.
    • Handle: RePEc:ags:aare08:6005
    DOI: 10.22004/ag.econ.6005
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/6005/files/cp08hu03.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.6005?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. R. Quentin Grafton & Tom Kompas, 2006. "Sydney Water : Pricing for Sustainability," Microeconomics Working Papers 21835, East Asian Bureau of Economic Research.
    2. Hugh Sibly, 2006. "Urban Water Pricing," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 13(1), pages 17-30.
    3. Jasper M. Dalhuisen & Raymond J. G. M. Florax & JHenri L. F. de Groot & Peter Nijkamp, 2003. "Price and Income Elasticities of Residential Water Demand: A Meta-Analysis," Land Economics, University of Wisconsin Press, vol. 79(2), pages 292-308.
    4. Donna Brennan & Sorada Tapsuwan & Gordon Ingram, 2007. "The welfare costs of urban outdoor water restrictions," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 51(3), pages 243-261, September.
    5. repec:ags:aare05:139341 is not listed on IDEAS
    6. Mark Hoffmann & Andrew Worthington & Helen Higgs, 2006. "Urban water demand with fixed volumetric charging in a large municipality: the case of Brisbane, Australia ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(3), pages 347-359, September.
    7. David Hensher & Nina Shore & Kenneth Train, 2006. "Water Supply Security and Willingness to Pay to Avoid Drought Restrictions," The Economic Record, The Economic Society of Australia, vol. 82(256), pages 56-66, March.
    8. Page, Sharon & Hafi, Ahmed & Beare, Stephen, 2007. "Urban Water Options Contracts - Rural to Urban Water Trade," 2007 Conference (51st), February 13-16, 2007, Queenstown, New Zealand 10398, Australian Agricultural and Resource Economics Society.
    9. Richard Bellman, 1957. "On a Dynamic Programming Approach to the Caterer Problem--I," Management Science, INFORMS, vol. 3(3), pages 270-278, April.
    10. Geoff Edwards, 2006. "Whose Values Count? Demand Management for Melbourne's Water," The Economic Record, The Economic Society of Australia, vol. 82(s1), pages 54-63, September.
    11. Brennan, Donna C., 2006. "The Efficiency And Equity Implications Of Perth’S Inclining Block Urban Water Tariffs," 2006 Conference (50th), February 8-10, 2006, Sydney, Australia 174095, Australian Agricultural and Resource Economics Society.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Productivity Commission, 2008. "Towards Urban Water Reform: A Discussion Paper," Research Papers 0801, Productivity Commission, Government of Australia.
    2. Barker, Andrew & Murray, Tim & Salerian, John, 2010. "Developing a Partial Equilibrium Model of an Urban Water System," Staff Working Papers 102, Productivity Commission, Government of Australia.
    3. Freebairn, John W., 2012. "Risk Aversion and Urban Water Decisions," 2012 Conference (56th), February 7-10, 2012, Fremantle, Australia 124206, Australian Agricultural and Resource Economics Society.
    4. Hughes, Neal & Hafi, Ahmed & Goesch, Tim, 2009. "Urban water management: optimal price and investment policy under climate variability," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 53(2), pages 1-18.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Neal Hughes & Ahmed Hafi & Tim Goesch, 2009. "Urban water management: optimal price and investment policy under climate variability ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 53(2), pages 175-192, April.
    2. repec:bla:ausecr:v:41:y:2008:i:4:p:401-412 is not listed on IDEAS
    3. Productivity Commission, 2008. "Towards Urban Water Reform: A Discussion Paper," Research Papers 0801, Productivity Commission, Government of Australia.
    4. Freebairn, John W., 2012. "Risk Aversion and Urban Water Decisions," 2012 Conference (56th), February 7-10, 2012, Fremantle, Australia 124206, Australian Agricultural and Resource Economics Society.
    5. John Freebairn, 2013. "Imperfect Knowledge and Urban Water Decisions," Economic Papers, The Economic Society of Australia, vol. 32(1), pages 32-40, March.
    6. Bethany Cooper & Michael Burton & Lin Crase, 2019. "Willingness to Pay to Avoid Water Restrictions in Australia Under a Changing Climate," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 72(3), pages 823-847, March.
    7. Olmstead, Sheila M. & Stavins, Robert N., 2008. "Comparing Price and Non-price Approaches to Urban Water Conservation," RFF Working Paper Series dp-08-22, Resources for the Future.
    8. Lin Crase & Suzanne O’Keefe & Brian Dollery, 2008. "Can Urban Water Markets Work? Some Concerns," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 15(3), pages 73-82.
    9. R. Quentin Grafton & Tom Kompas, 2006. "Sydney Water : Pricing for Sustainability," Microeconomics Working Papers 21835, East Asian Bureau of Economic Research.
    10. Emma Aisbett & Ralf Steinhauser, 2011. "Maintaining the Common Pool: Voluntary Water Conservation in Response to Increasing Scarcity," Crawford School Research Papers 1111, Crawford School of Public Policy, The Australian National University.
    11. Sheila M. Olmstead, 2010. "The Economics of Managing Scarce Water Resources," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 4(2), pages 179-198, Summer.
    12. Aina, Ifedotun Victor & Thiam, Djiby Racine & Dinar, Ariel, 2023. "Substitution of piped water and self-supplied groundwater: The case of residential water in South Africa," Utilities Policy, Elsevier, vol. 80(C).
    13. R. Quentin Grafton & Michael B. Ward, 2008. "Prices versus Rationing: Marshallian Surplus and Mandatory Water Restrictions," The Economic Record, The Economic Society of Australia, vol. 84(s1), pages 57-65, September.
    14. Cooper, Bethany & Crase, Lin & Burton, Michael P., 2010. "Urban Water Restrictions: Attitudes and Avoidance," 2010 Conference (54th), February 10-12, 2010, Adelaide, Australia 58892, Australian Agricultural and Resource Economics Society.
    15. Emma Aisbett & Ralf Steinhauser, 2014. "Maintaining the Common Pool: Voluntary Water Conservation in Response to Varying Scarcity," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 59(2), pages 167-185, October.
    16. Griffin, Ronald C. & Mjelde, James W., 2011. "Distributing water's bounty," Ecological Economics, Elsevier, vol. 72(C), pages 116-128.
    17. Hugh Sibly & Richard Tooth, 2014. "The consequences of using increasing block tariffs to price urban water," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 58(2), pages 223-243, April.
    18. Liang Lu & David Deller & Morten Hviid, 2019. "Price and Behavioural Signals to Encourage Household Water Conservation: Implications for the UK," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 33(2), pages 475-491, January.
    19. Byrnes, Joel & Crase, Lin & Dollery, Brian & Villano, Renato, 2010. "The relative economic efficiency of urban water utilities in regional New South Wales and Victoria," Resource and Energy Economics, Elsevier, vol. 32(3), pages 439-455, August.
    20. Xiaojia Bao, 2016. "Water, Electricity and Weather Variability in Rural Northern China," Working Papers 2014-07-02, Wang Yanan Institute for Studies in Economics (WISE), Xiamen University.
    21. Henrique Monteiro, 2010. "Residential Water Demand in Portugal: checking for efficiency-based justifications for increasing block tariffs," Working Papers Series 1 ercwp0110, ISCTE-IUL, Business Research Unit (BRU-IUL).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:aare08:6005. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/aaresea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.