Uncertainty, Benefit Transfers, and Physical Models: A Middle Rio Grande Valley Focus

David S. Brookshire, Janie M. Chermak, and Richard DeSimone

Abstract

Water is a scarce commodity in the western United States. A difficulty in developing precise economic policy models for water reallocation considerations has been exacerbated not only by climate issues but also by institutional changes reflected in the promulgation of environmental laws, changing regional populations, and an increased focus on water quality standards, as well as Native American water rights claims. As complexity of the water issues have increased, model development at a micro-policy level is necessary to capture difficult institutional nuances and represent the differing stakeholders' viewpoints. More often than not, adequate local micro-data are not available in all settings for modeling and policy decisions.

This paper assesses the effects of the relative uncertainty of benefit transfer methods, uncertainty of climate data and of alternative population projections on policy decisions. Our motivation stems from the need to address the relative importance of more accurate data both from the physical sciences as well as from demography and economics for policy analyses. We do this by seeking to answer two questions: (1) How much does the surrounding uncertainty of the benefit transfer, climate information, and other forecast information impact policy decisions in reallocation issues? and (2) Where should research efforts be focused in order to improve analyses on which policy decisions are based? We focus on the problem of water allocation in the desert southwest in the United States and explore the implications of reallocation using both benefit transfer methods and data from climate models with a high degree of uncertainty. We develop a hybrid economic-engineering model of water consumption in the Middle Rio Grande Valley using local data to establish a baseline for the relative uncertainty analyses. The model allows the exploration of the effects of differing transferred data sets on the optimal net benefits of allocating water both spatially and across uses.

Notes

This paper was presented at the EVE Workshop, Lillehammer, Norway, October, 1999. The paper has since been revised and has benefited from comments by Olvar Bergland, Staale Navrud, Richard Ready, Eirik Ronistad, Ian Bateman, Clive Spash, Susana Mourato and other participants. We would like to thank the Southwest Regional Assessment Program for partial financial support, which was received from the U.S. Global Change Research Program in conjunction with the White House Office of Science and Technology Policy and by SAHRA (Sustainability of Semi-Arid Hydrology and Riparian Areas) under the STC Program of the National Science Foundation, Agreement No. EAR-987680.

**The authors are, respectively Professor, Associate Professor and Research Assistant in the Department of Economics at the University of New Mexico, Albuquerque, New Mexico, 8713 1-110 1, USA

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