Lecture 5 - Economic valuation of water resources

Lecturer:

Dr. C.F.A. van Wesenbeeck, Mathematical economist
Director Amsterdam Centre for World Food Studies
School of Business and Economics, Vrije Universiteit Amsterdam
c.f.a.van.wesenbeeck@vu.nl

1. Economic valuation of resources: basic introduction into welfare economics and the use of shadow prices as valuation instruments
2. problem with water: does not obey assumptions made in welfare economic framework with respect to functional forms
3. Two ways out:
   • Keep technology intact, and valuate through shadow prices, but not necessarily reaching an optimum
   • Model water system in a way that satisfies welfare economic assumptions, but is still acceptable to hydrologists.

Exercises:

1. Show within the general welfare economic framework the consequences of a valuation of water that is higher than the market price
2. Formulate interpretations of the feedback from the individual users to the central optimization under option (3b)
3. Formulate ways in which the pricing of water can be adjusted to become equal to the valuation of water, without inducing unwanted side-effects on access to water by consumers and farmers

Slides:

Economic valuation of water resources.pptx