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Natural Resource Economics

 

Eco 3009F

Table of Contents

Part I: Evidence of water scarcity  

Jury, WA and Vaux, H, 2005. The role of science in solving the world00 emerging water problems. Proceedings of the National Academy of Science 102(44): 15715 0015720.

 

Ninham Shand Consulting Engineers, 2002. Synopsis to: Water Resources Situation Assessment: Berg Water Management Area. Department of Water Affairs and Forestry www.dwaf.gov.za 

Schutte CF and WA Pretorius. 1997. Water demand and population growth. Water SA 23(2): 127-134

Part II: Dealing with scarcity  

Kula, E. 1992. A history of economic thought on natural resources and the environment. Chapter 1 in: Economics of Natural Resources and the Environment. Chapman and Hall.   

 

Hardin, G. 1968. The tragedy of the commons. Science 162:1243-48.   

 

Brown, SPA and D Wolk. 2000. Natural resource scarcity and technological change. Federal Reserve Bank of Dallas Economic and Financial Review 1st quarter:2-13.  

 

Fields, BC, 1997. The economics of environmental quality. Chapter 5 in: Environmental Economics An Introduction 2nd edition. McGraw-Hill ISBN 0-07-115273-3, 22 pages of 490.

 
 
 
 

Part III: Allocating water

 

Sampath, RK. 1992. Issues in irrigation pricing in developing countries. World Development 20(7): 967-977.         

Schur, MA. 1994. The need to pay for water in the rural water sector. South African Journal of Economics 62(4): 419-431       

 

Ward, FA, Michelsen, AM and DeMouch L. 2007. Barriers to water conservation in the Rio Grande basin. Journal of the American Water Resources Association 43 (1): 237-253.

Part IV: Models to value water use  

Foster, HS and BR Beattie. 1979. Urban Residential Demand for Water in the United States. Land Economics 55(1): 43-57.       

 

Renzetti, S. 1992. Evaluating the welfare effects of reforming municipal water prices. Journal of Environmental Economics and Management 22: 147-163.   

 

Howe, WC. 1985. Economic, legal and hydrological dimensions of potential interstate water markets. American Journal of Agricultural Economics 1226-1230.   

 

Taylor, RG and RA Young. 1995. Rural-to-urban transfers: Measuring direct foregone benefits of irrigation water under uncertain water supplies. Journal of Agricultural and Resource Economics 20(2): 247-262. 

 

Torell, LA, Libbin JD and Miller MD. 1990. The market value of water in the Ogallala aquifer. Land Economics 66(2): 163 00175.

 

Stage, J and Williams, R. 2003. Implicit water pricing in Namibian farmland markets. Development Southern Africa 20(5): 633 00645.

 

Turpie, J and A Joubert. 2001. Estimating potential impacts of a change in river quality on the tourism value of Kruger National part: An application of travel cost, contingent and conjoint valuation methods. WaterSA 27(3): 387 00398.

 

Hosking, SG and Du Preez M. 2001. Valuing water gains in the Eastern Cape00 Working for Water programme. WaterSA 28(1): 23 0028.

Study guide I: Evidence of Water Scarcity  
 
 

Key points

 
Becoming aware of water scarcity The role of science Situation in the Western Cape (incl. differences between Berg & Breede) Water as an intermediate input Problems Schutte & Pretorius  
 
 
 

Practice questions

 
Give an overview of the world00 water problems and the role of science in solving them Can Science solve the world00 water problems? Which has the best chance of solving the world00 water problems? Science or Economics? What are the main water problems in South Africa, and what is Economics00contribution in solving the problem? What are the main uses of water in the Western Cape, what their magnitudes and what is the extent of future conflicts? How do Schutte & Pretorius (1997) model future water demand? Give detail of the elements in their model Critique the Schutte & Pretorius paper (hint: Thompson, B. 1998. Comment on: 00ater demand and population growth00by CF Schutte and WA Pretorius). WaterSA 24(3): 265 00267) Schutte & Pretorius estimate direct and indirect per capital water demand to be 638litre/day. How was this figure calculated and how should planners use this figure? Compare the water balance of the Berg to the water balance of the Breede. Discuss the principles and economic logic of inter-basin transfers. Study guide II: Dealing with Scarcity  
 
 

Key points

 
Growing scarcity over time; the response of Economic thought (pessimists vs. optimists) Spaceship earth vs. being saved by technology Club of Rome model: Modelling growth as the interaction of production, resource scarcity & pollution Technological developments offset scarcity Model of mineral scarcity Trends in mineral scarcity Scarcity is ultimately the result of population growth, which is difficult to control  
 
 
 

Practice questions

 
Outline the Club of Rome model and discuss its more important results. Many of the thinkers about resource scarcity such as Malthus and Ricardo were quite pessimistic about our future. Discuss their point of view. There is ample evidence that we are not living on Space Ship Earth and yet there is good reason to believe that resource scarcity will eventually lead to society00 collapse. Discuss. Discuss the Brown & Wolk model of resource scarcity. Discuss Brown & Wolk00 findings regarding resource scarcity. Outline Malthus00 theory of population growth and compare it to Ricardo00 theory of population growth. There is relatively widespread evidence of falling real resource prices. Why is this a surprising result to economists and what reasons are offered to explain it? Under pricing natural resources have at least four predictable impacts. Discuss with respect to the energy sector (farming sector, water demand, timber industry). What do you expect to have happened to real resource prices over time? Is the hypothesis supported by the evidence? Apply the concept of the tragedy of the commons to the water system of the Cape Peninsula. Study guide III: Allocating Water  
 
 
Microeconomic principles to allocate scarce goods (marginal benefit and marginal value product) Systems of property rights: Riparian, prior appropriation, user pays, beneficial use Pricing systems: MC pricing, full cost recovery, water as a basic need, development goals Water-saving irrigation systems does not save water Value of water in a new use is the opportunity cost of use elsewhere  
 
 
 

Practice questions

Suppose you come from a part of the world which receives ample rainfall so that demand never even gets close to the available amount. Should you be careful about the amount of water you use or should you simply use whatever you want whenever you want it? Explain your answer. What principles should be used to decide what irrigation water should cost? Given that none of the pure pricing systems for water, including giving it away free of charge, are perfect, how should the South African Government price water? Full cost recovery and marginal cost pricing have very different objectives, but many of the same problems. What are they? What is the role of government in irrigation water provision? Make a case for and against marginal cost pricing of irrigation water. What are the ways for allocating water, and which of these are favoured by economists? What are the arguments for and against full cost recovery for domestic water in South Africa as outlined by Schur (1994)? What is the difference between an annual irrigation tax and the price of a water right? Which of these should be used to calculate the opportunity cost for transferring water to urban use? How can farmers be encouraged to conserve water? What works and what does not work? Study guide IV: Models of Water Use  
 
 

Key points

 
Variables in household demand for water The municipality00 cost function for water provision Allocating water within a city Implications of price and income elasticities of residential water Which/how much water could irrigation release? Mechanics of LP models, including parametric programming & realistic water  constraints Crop-soil-irrigation activities in LP models Valuing non-market goods Techniques for valuing the environment Travel Cost Method (TCM) Contingent Valuation  
 
 
 

Practice questions

 
Discuss the theory underlying the model of residential water demand. Interpret the following residential demand estimation results00/font> The estimated PED of household water in Kuruman is -0.38 and the income elasticity are 6.5. There are 50000 households in Kuruman of which of 45000 live in squatter camps or RDP housing. What is the implication of these findings for trying to reduce demand by increasing price? Explain the principles of linear programming. Also explain what parametric programming is and how it is used to derive an irrigation demand function. In what sense does irrigation waste water? What is the essential difference between Howe00 model and the model of Taylor and Young? Aggregate water demand for South Africa can be derived by horizontal summation of all the sector demands. Use what you know about sector demands to sketch the component and aggregate water demand for the country as a whole. Construct a LP model based on the following soil, crop and irrigation technology data00/font> Linear programming is often used to derive the value of irrigation water by simulating observed crop mixes. How does a linear programming model work in this example? Worcester is growing rapidly because the labour intensive agriculture in the district creates many unskilled jobs. Its traditional sources of water are no longer sufficient and water will have to be diverted from irrigated agriculture. Set out the research methodology through which the optimal size of the transfer can be identified.  
The boutique winery at Dwarsrivier in the Cederberg recently won a contract to sell organic wine to a chain of wine shops in Denmark. In order to meet production the area of irrigation vineyards at Dwarsrivier has to triple. As resource economist at Cape Nature Conservation you would have to approve the permit for additional irrigation. Explain your decision. How would your decision be different if the application was received from the next ward over in Ceres Koue Bokkeveld but pertained to an area ten times large? How would your decision be different if the application came from Wolseley or from Bonnievale? What does theory suggest about how an irrigation should farmer respond to a one-third water restriction, i.e. a reduction of the annual water quota by 33 per cent? Discuss the potential sources of bias in the Contingent Valuation technique and how to deal with them. Non-market valuation techniques are needed to put a value to intangibles such as a fully functioning river ecosystem. Give an overview of the techniques available and the dimensions of value captured by each of these techniques. Describe the travel cost method. Compare the travel cost method to contingent valuation. Discuss Turpie & Joubert00 (2001) results. Briefly compare and contrast stated preference and revealed preference methods of environmental valuation.

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