J. Booker, Siena College Going Beyond Agricultural Water Productivity, World Bank Workshop, 8 Dec., 2014 page 1 / 25

Going Beyond Agricultural Water Productivity, World Bank Workshop, 8 Dec., 2014

Insights from

Hydroeconomic Modeling

James Booker

Siena College

Loudonville, NY

J. Booker, Siena College Going Beyond Agricultural Water Productivity, World Bank Workshop, 8 Dec., 2014 page 2 / 25

Outline

1. Examples of hydroeconomic models.

2. Model estimates, baselines, and benefit-cost

analysis.

3. Implicit single factor productivity estimates

4. Towards TFP

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Systems approach

focusing on interdependencies

source: Cai, McKinney, and

Lasdon, JWRPM, 2003

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source: Cai, McKinney, and

Lasdon, JWRPM, 2003

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source: Booker & Young,

JEEM, 1994

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source: Cai, McKinney, and

Lasdon, JWRPM, 2003

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A hydroeconomic model is a system-wide

maximization of net benefits

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Water demand functions for each user

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System-wide solution I:

allocation by non-economic rule

where value V is used to force allocation between users

according to purely non-economic priorities.

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System-wide solution I:allocation by maximizing net benefits

Objective function based purely on economic benefits

net of explicit costs:

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Estimating marginal values of the irrigation water input

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Residual imputation for

estimating irrigation water demand

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Deficit irrigation / direct crop response may be added

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Ultimately …

Use mathematical programming techniques

to estimate farm / regional benefits as total

irrigation water supply is varied.

Fit these results to a convenient functional

form, and each regional user then has a

water demand function.

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Water demand functions for each user

J. Booker, Siena College Going Beyond Agricultural Water Productivity, World Bank Workshop, 8 Dec., 2014 page 16 / 25

source: Cai, McKinney, and

Lasdon, JWRPM, 2003

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Model solution

maximize selected measure of net benefits

subject to

• hydrologic constraints

• acreage constraints

• technology constraints

• institutional / operations constraints

• other

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Hydroeconomic model optimization provides

accounting of diversions, instream flows, and

multisectoral use impacts

source: Cai, McKinney, and

Lasdon, JWRPM, 2003And – implicitly includes water

opportunity costs / nonpriced

impacts on other users.

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Explicit baseline typically defined

source: Cai, McKinney, and

Lasdon, JWRPM, 2003

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One interpretation: this a NPV estimate

source: Cai, McKinney, and Lasdon, JWRPM, 2003

NPV of moving from standard operating criteria

to those maximizing quantified net benefits is

3.76 – 2.86 = 0.90 billion USD . But –unique BCR difficult :

treatment of nonpriced

opportunity costs ?

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A second interpretation: this a “crop per drop”

change

source: Cai, McKinney, and Lasdon, JWRPM, 2003

Baseline: “Crop per drop” = (3570*0.74)/51.8 = 51;

Full-optimize: “Crop per drop” = (3570*0.89)/45.6 = 64;

=> Increase of 25% .

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Their text: full optimization (FOP) vs. baseline

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Continuing with Cai, McKinney, and Lasdon, 2003:

If we look just at local water withdrawal “crop per drop,” then this

increases by 70% to 120% (holding yield impacts constant).

c.f. a full basin increase of just 25% .

Water delivery efficiency Irrigation efficiency Total change

before after before after before after

0.5 0.7 0.5 0.8 0.25 0.56

0.6 0.8 0.65 0.85 0.39 0.68

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Hydroeconomic modeling easily provides

single factor productivity

• Basin wide measures will be very different

from local / regional productivity measures

• Consumptive use versus withdrawals

matters:

– productivity will differ

– changes in productivity will differ

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Towards TFP measures from

hydroeconomic modeling

• Are there conceptual issues preventing comparison of

TFP between scenarios?

(e.g. treatment of scarcity costs as an input?)

• What are the practical challenges?

• What interpretations add value to our understanding of

– Hydroeconomic modeling estimates

– Traditional TFP estimates abstracting from hydrologic and

geographic details

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