Geography versus sector based approaches to reducing water resource usage

Abstract

As population, the demand for food, and industrial production continue to grow, water will continue to be a valuable commodity necessary for economic growth. Given the stochastic nature of water availability, which may potentially become more volatile due to climate change, the need for optimally allocating this resource is consequential to welfare outcomes. Additional difficulties managing water allocations come from the fact that it is a flow resource and can cross many geographic and political boundaries. This paper explores whether it is more optimal to manage water resources under practical, but suboptimal policies, where allocations are determined under geographic and sector-based policies. Using static and dynamic simulations shows that alternative policy options yield alternative welfare outcomes based on the degree of heterogeneity across space and across sectors. My hypothesis is that which policy is best for planners to implement will hinge on which one is more heterogeneous in nature.