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Assessing the economic viability of alternative water resources in water-scarce regions: Combining economic valuation, cost-benefit analysis and discounting

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  • Birol, Ekin
  • Koundouri, Phoebe
  • Kountouris, Yiannis
Abstract
This paper demonstrates a comprehensive methodology for assessing the viability of an environmental management plan that has long-run economic and ecological impacts. The case study under consideration is the implementation of a water-resource management plan in a water-scarce region of the world, namely Cyprus. Specifically, this plan proposes to replenish a depleting aquifer with treated wastewater. The proposed methodology first identifies the key stakeholder groups (farmers and the general public) who are hypothesized to derive economic values (benefits) from implementation of this plan, and then uses stated-preference methods to capture the total economic value of these benefits. Benefits are aggregated over the relevant populations of these stakeholder groups and weighed against the total costs of implementing the plan in a long-run cost-benefit analysis (CBA). An econometrically estimated time-declining trajectory of discount rates is used for the CBA in order to assess the long-run sustainability of the plan. The results reveal that the net benefit trajectory estimated with the time-declining discount rate takes one and a half to three times as long to come to a plateau compared to the constant discount rates of 3.5 and 6%, emphasizing the importance of using declining discount rates and capturing the entirety of the benefits generated by such plans. This methodology is particularly recommended for providing much needed information to support the implementation of the EU Water Framework Directive, which advocates the use of CBA with consideration of the notion of sustainability for achieving the "good water status" for all European waters.
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  • Birol, Ekin & Koundouri, Phoebe & Kountouris, Yiannis, 2009. "Assessing the economic viability of alternative water resources in water-scarce regions: Combining economic valuation, cost-benefit analysis and discounting," IFPRI discussion papers 908, International Food Policy Research Institute (IFPRI).
    • Handle: RePEc:fpr:ifprid:908
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    3. Bolinches, Antonio & Blanco-Gutiérrez, Irene & Zubelzu, Sergio & Esteve, Paloma & Gómez-Ramos, Almudena, 2022. "A method for the prioritization of water reuse projects in agriculture irrigation," Agricultural Water Management, Elsevier, vol. 263(C).
    4. West, Grant H. & Snell, Heather & Kovacs, Kent & Nayga, Rodolfo M., 2020. "Estimation of the preferences for the intertemporal services from groundwater," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304220, Agricultural and Applied Economics Association.
    5. Yuchen Pan & Li Ma & Hong Tang & Yiwen Wu & Zhongjian Yang, 2021. "Land Use Transitions under Rapid Urbanization in Chengdu-Chongqing Region: A Perspective of Coupling Water and Land Resources," Land, MDPI, vol. 10(8), pages 1-21, August.
    6. Ioannis Anastasiou & Anastasios Xepapadeas & Vassilios Babalos & Marva Stithou & Osiel Davila & Phoebe Koundouri & Antonios Antypas & Nikolaos Kourogenis & Aris Mousoulides & Marianna Mousoulidou & Ni, 2013. "Methodology for Integrated Socio-Economic Assessment of Offshore Platforms: Towards Facilitation of the Implementation of the Marine Strategy Framework Directive," DEOS Working Papers 1304, Athens University of Economics and Business.
    7. Carme Machí Castañer & Águeda Bellver-Domingo & Francesc Hernández-Sancho, 2020. "Environmental and Economic Approach to Assess a Horizontal Sub-Surface Flow Wetland in Developing Area," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 34(12), pages 3761-3778, September.
    8. Michela Faccioli & Nick Hanley & Catalina M. Torres Figuerola & Antoni Riera Font, 2015. "Do we care about sustainability? An analysis of time sensitivity of social preferences under environmental time-persistent effects," Discussion Papers in Environment and Development Economics 2015-17, University of St. Andrews, School of Geography and Sustainable Development.
    9. Madjid Bouzit & Sukanya Das & Lise Cary, 2018. "Valuing Treated Wastewater and Reuse: Preliminary Implications From a Meta-Analysis," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 4(02), pages 1-26, April.
    10. Phoebe Koundouri & Nikos Papandreou & Mavra Stithou & Osiel Davila, 2013. "A Value Transfer Approach for the Economic Estimation of Industrial Pollution: Policy Recommendations," DEOS Working Papers 1315, Athens University of Economics and Business.
    11. Sain, Gustavo & Loboguerrero, Ana María & Corner-Dolloff, Caitlin & Lizarazo, Miguel & Nowak, Andreea & Martínez-Barón, Deissy & Andrieu, Nadine, 2017. "Costs and benefits of climate-smart agriculture: The case of the Dry Corridor in Guatemala," Agricultural Systems, Elsevier, vol. 151(C), pages 163-173.
    12. Borrego-Marín, María M. & Berbel, J., 2019. "Cost-benefit analysis of irrigation modernization in Guadalquivir River Basin," Agricultural Water Management, Elsevier, vol. 212(C), pages 416-423.
    13. Cuimei Lv & Yifan He & Wenge Zhang & Changkuan Gu & Yang Li & Denghua Yan, 2021. "Quantitative Analysis of Eco-economic Benefits of Urban Reclaimed Water Greening Based on Emergy Theory," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 35(14), pages 5029-5047, November.
    14. Kent F. Kovacs & Shelby Rider, 2022. "Estimating the Demand for In Situ Groundwater for Climate Resilience: The Case of the Mississippi River Alluvial Aquifer in Arkansas," NBER Chapters, in: American Agriculture, Water Resources, and Climate Change, pages 367-381, National Bureau of Economic Research, Inc.
    15. Phoebe Koundouri & Osiel Gonzalez Davila, 2013. "The Use of Ecosystem Services Approach in Guiding Water Valuation and Management: Inland and Coastal Waters," DEOS Working Papers 1334, Athens University of Economics and Business.
    16. Francisco Alcon & Julia Martin-Ortega & Francisco Pedrero & Juan Alarcon & M. Miguel, 2013. "Incorporating Non-market Benefits of Reclaimed Water into Cost-Benefit Analysis: A Case Study of Irrigated Mandarin Crops in southern Spain," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 27(6), pages 1809-1820, April.
    17. World Bank Group, 2016. "Valuing Water Resources in Turkey," World Bank Publications - Reports 25291, The World Bank Group.
    18. Phoebe Koundouri & Ebun Akinsete & Nikolaos Englezos & Xanthi Kartala & Ioannis Souliotis & Josef Adler, 2017. "Economic instruments, behaviour and incentives in groundwater management," DEOS Working Papers 1711, Athens University of Economics and Business.
    19. Abdulai, Awudu & Owusu, Victor & Bakang, John-Eudes A., 2011. "Adoption of safer irrigation technologies and cropping patterns: Evidence from Southern Ghana," Ecological Economics, Elsevier, vol. 70(7), pages 1415-1423, May.
    20. Wenting Chen & Phoebe Koundouri & Osiel Gonzalez Davila & Claire Haggett & David Rudolph & Shiau-Yun Lu & Chia-Fa Chi & Jason Yu & Lars Golmen & Yung-Hsiang Ying, 2020. "Social acceptance and socioeconomic effects of Multi-Use Offshore Developments:Theory and Applications in MERMAID and TROPOS projects," DEOS Working Papers 2021, Athens University of Economics and Business.

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    Keywords

    Aquifer recharge; Treated wastewater; Total economic value; Choice experiment; Long-run cost benefit analysis; Declining discounting;
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