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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.

Suggested Citation

  • Birol, Ekin & Koundouri, Phoebe & Kountouris, Yiannis, 2010. "Assessing the economic viability of alternative water resources in water-scarce regions: Combining economic valuation, cost-benefit analysis and discounting," Ecological Economics, Elsevier, vol. 69(4), pages 839-847, February.
    • Handle: RePEc:eee:ecolec:v:69:y:2010:i:4:p:839-847
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    5. 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.
    6. 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.
    7. 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.
    8. 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.
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    12. Adrian Gheorghe ZUGRAVU & Ionica SOARE, 2015. "Social Aquaculture Model for Sustainable Rural Development," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 2, pages 86-91.
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    17. 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.
    18. 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.
    19. 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.
    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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