HYDROLOGIC AND ECONOMIC IMPACTS OF DROUGHT UNDER ALTERNATWE POLICY RESPONSES¹

Abstract

A severe sustained drought in the Colorado River Basin would cause economic damages throughout the Basin. An integrated hydrologic-economic-institutional model introduced here shows that consumptive water users in headwaters states are particularly vulnerable to veiy large shortfalls and hence large damages because their rights are effectively junior to downstream users. Chronic shortfalls to consumptive users relying on diversions in excess of rights under the Colorado River Compact are also possible. Nonconsumptive water uses (for hydropower and recreation) are severely affected during the worst drought years as instream flows are reduced and reservoirs are depleted. Damages to these uses exceeds those to consumptive uses, with the value of lost hydropower production the single largest economic impact of a severe sustained drought. Modeling of alternative policy responses to drought suggests three general policy approaches with particular promise for reducing damages. Consumptive use damages can be reduced by over 90 percent through reallocation from low to high valued uses and through reservoir storage strategies which minimize evaporation losses. Reservoir management to preserve minimum power pooi levels for hydropower production (and to maintain reservoir recreation) may reduce damages to these nonconsumptive uses by over 30 percent, but it may increase consumptive use shortfalls. (KEY TERMS: economic impacts; drought; water policy; reservoir management; institutions; modeling.) ing interstate consumptive use markets are investigated.An integrated hydrologic-economic-institutional model (CRIM, the Colorado River Institutional Model) for estimating the economic and hydrologic impacts of drought is first introduced. Second, model results are used to develop a detailed assessment of economic impacts of the severe sustained drought under the existing operating rules and policy (the Law of the River). The economic and hydrologic impacts reported are derived directly from the use of CRIM to model the severe sustained drought under this existing River management. Eight alternative policy responses to drought are then modeled. Drought impacts under each policy are critically examined, and several recommendations are provided.

Review article: Assessing the costs of natural hazards – state of the art and knowledge gaps

“…Hydrological-economic models link the economic assessment to a hydrological model (see e.g. Booker, 1995;Booker et al, 2005;and Ward et al, 2006). Ricardian hedonic price modeling, as in Easterling and Mendelsohn (2000), links variations in land values across space with variations in climate.…”

Economic impact of alternative policy responses to prolonged and severe drought in the Rio Grande Basin

“…Constraints are used to characterize basin hydrology and institutions. This analysis is in the spirit of similar previous work by Vaux and Howitt [1984], Booker [1995], and Hurd et al [2002Hurd et al [ , 2004 all of which developed integrated basin-wide hydrologic models for policy analysis containing an economic objective. Appendix A contains details of the model formulation.…”

“…Other work developed extensions to managing water quality [Lee et al, 1993] and incorporated additional nonconsumptive use values [Booker and Young, 1994]. Under drought conditions, the impacts of several market institutions were estimated by Booker [1995]. At the subbasin scale, integrated modeling of economic impacts of water transfers for protecting in-stream flows was devel- oped by Hamilton et al [1999] and by Willis and Whittlesey [1998]; impacts of water markets for protecting water quality were examined by Weinberg et al [1993].…”

Water allocation between states in inter-basin water transfer in India

“…Booker 1995, Young 1995, Howe 2005. In India, an unambiguous institutional mechanism for settling interstate water does not exist (Iyer 1994;Richards and Singh 2002).…”