Exchange and Study

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Exchange and Study
Economic Valuation of Water Resources

• ???????????
• China Institute of Water Resources Hydropower
  Research (IWHR)
• 2006 . 11. 17

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Outline????

• Theory Method????
• Application????

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?????????Ways to water valuation

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????????(??)

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• 1?????????????(????)
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• 2????????????????(????)
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  ???????????????????,??????????????????????????????
  ??????????????????????,??????????????????
• 3????????????????(??????-????)
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  ??????????
• 4????????????????(????)
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  ???,?????????

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??????????
?? ??????? market valuation for physical effects ????????? revealed preference approach ????? Stated Preference Act
? ? ? ? ????? dose- response technique ????? ?????Changes in productivity or effect on production approach ?????cost of illness approach ,human capital approach ?????opportunity cost ?????replacement cost approach ???????(??????,??????????) ?????/??????? ?????travel cost approach ?????preventive expenditure approach ??????? contingent valuation
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1. Theory Method????

• 1.1 Duality theory of linear programming
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• 1.2 Opportunity cost ?????
• 1.3 Alternative cost ?????
• 1.4 Cost decomposition ?????
• 1.5 Equilibrium market price ???????
• ??????????????????

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1. Theory Method????

• Economic value of water resources refers to
  incremental benefit, measured with currency,
  brought by unit natural water (raw water without
  processing as for commodity) to economic and
  social users.
• ??????? ??????????????????????????????
• Real value of water resources can not be directly
  observed from the market.
• There are several methods to evaluate the value
  of water resources

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1.1 Duality theory of linear programming?????????

• The price is calculated aiming at maximum
  economic benefit. The shadow price calculated
  reflects consumption of social labour, extent of
  shortage of resources and price of resources.
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  ???????????????????

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1.1 Duality theory of linear programming?????????

• The shortcoming difficulty in obtaining all the
  data to derive parameters of the model, the price
  may not represent real value of water resources
  themselves and the shadow price derived by the
  model is static
• ???????????????????????????,?????????????????????
  ??,????????????????

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1.2 Opportunity cost?????

• Opportunity cost of resources occupied, expressed
  as maximum marginal benefit obtained from unit
  resources by giving up other opportunities of
  gains.
• Theory of land rent is considered as methodology
  of opportunity cost for calculating shadow price
  of water resources. This approach has advantage
  of straightforwardness and easy access to data,
  but disadvantage of poor representativeness.
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  ????
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Combination of the rent theory and production
price method
?????????????(???,1995)

• P t annual water price,t1,2,3.n
• iThe average interest rate
• R0Basic rent
• athe coefficient representing abundance and the
  condition of natural resources use, Differential
  rent
• CFixed capital valueVVariable costmAverage
  profit
• QdWater demand QsWater supply
• EdElasticity of water demandEsElasticity of
  water supply?
• The principle, the complete production cost
  cost profit land rent
• practical application, the parameter is
  difficult to decide.
• The rent to reflect natural value of resource,
  the production price reflects the production
  inputs, the elasticity of supply and demand
  reflects the degree of water scarcity.

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1.3 Alternative cost?????

• Data which reflect cost or function of
  reproduction of water resources are applied to
  substitute the shadow price of water resources
  approximately.
• recovery cost (reproduction cost or
  re-procurement cost, cost of wastewater treatment
  or dam construction, for example)
• loss due to water shortage (damage function).
  This approach has advantage of straightforwardness
  and easy access to data but disadvantage of
  possible distortion from real shadow price of
  water resources.
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  ????)?
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1.4 Cost decomposition?????

• Based on the assumption of an equilibrium market,
  unit production cost and average profit of
  commodity water are deducted from market price of
  the commodity water by applying method of inverse
  calculation, that is, residual method.
  Reliability of the result of this approach
  depends on rationality of the market price.
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1.4 Cost decomposition?????
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1.4 Cost decomposition?????

• Assume Factors are owned by different investors
• (?????????????????)
• Input of factors Xi Every production factor is
  converted into money value in a consistent way
  according to purchaser price (i.e., determined by
  the production processes of the factor in the
  last time interval), i1,2,,n?
• ????????????(?????????????????????)?????????,?
  Xi ??,i1,2,,n?

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1.4 Cost decomposition?????

• The net return B TS
• ???B TS ,???? ?
• The total output Y ,as the result of
  sales price (it is not same time as input)
  multiplied by the quantity of product.
• ???????(??????????)??????????

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1.4 Cost decomposition????? Equation????

• The equation of reasonable calculation
• the total economic value of water TVW
• 
  (???????)
  
  
• 
  k-water(???)
• the net return rate of costs- r(????)
• r-total of water used(???)
• 
  

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1.5 Equilibrium market price???????

• Developing equations of commodity and resource
  demands and commodity and resource supplies,
  relative prices of commodities and
  productions/consumptions of sectors in the study
  area are simulated under the condition of
  equilibrium economy.
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  ?????????
• ????????????,??????????????????????,??????????????
  ,?????????,???????

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2. Application????

• In China, approaches used commonly
• alternative source,
• loss caused by industrial water shortage,
• loss caused agricultural water shortage,
• identical return rate,
• benefit-sharing coefficient ,
• shadow price.
• ????????????????
• ???????,???????,???????,??????,?????,??????
• (????????????,1996?)
• Of all the approaches, benefit-sharing
  coefficient has been extensively applied
• In late 1980s, this approach was applied for
  benefit calculations of urban water supplies and
  irrigation

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Approach of Benefit-sharing Coefficient
???????

• Principle profit-sharing of stock. The benefit
  of industrial production is shared by each of
  production factor according to its proportion of
  input based on the principle of Who gets return
  if he inputs. ??????,???????????????????????
  ?????????
• Assumption (????)
• (1)All the input factors are reflected in the
  form of currency in the total input in the
  production process.
• ??????????????????????????????
• (2)Input to water supply project is assessed
  according to shadow price of the input factors.
  ??????????????????
• (3)The water supply project is the optimal
  alternative.??????????????????

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Approach of Benefit-sharing Coefficient
???????

• Foundationshould reflect effect and contribution
  of whole water source to user?
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• Ways(??)
• ? proportion of investment, ? proportion of
  fixed assets, ? proportion of cost, ?
  proportion of fund occupied (including fixed fund
  floating fund) or
  ? proportion of discounted annual cost.
• ?????? ???????? ??????,?????(???????????)???,??
  ????(????????????)????
• The methods of proportion investment and
  proportion of fixed assets are commonly used
  because of easy access to data and simple
  calculation.
• ??????,????? ???(?????????????)?

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Approach of Benefit-sharing Coefficient
???????

• Equation(????)
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• e original fixed assets value of water project
  / (original fixed assets value of water project
  original fixed assets value of production sector)

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