Water resources, efficiency pricing, and revenue recycling

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Pitafi, Basharat A.K.
Groundwater -- Economic aspects -- Hawaii -- Oahu -- Management; Environmental impact charges; Groundwater recharge -- Economic aspects -- Hawaii -- Oahu; Watershed management -- Economic aspects -- Hawaii -- Oahu; Water utilities -- Rates -- Hawaii -- Oahu
thesis / dissertation description
This dissertation addresses examines the issues involved in integrating the efficient use of resources and resulting revenues. Three essays in this dissertation focus on groundwater resources on the island of Oahu (Hawaii) to demonstrate the complexity of efficient resource use and its dependence on the use of resource management revenues and changes in other resources. First essay addresses welfare effects and political feasibility of efficient groundwater usage and pricing. Proposals for marginal cost water pricing have often been found to be politically infeasible because current users lose welfare through higher prices though future users gain and overall welfare increases. The essay shows how efficiency pricing can be rendered Pareto-improving, and thus politically feasible, by using the efficiency pricing revenue to compensate the users who suffer a loss. A method is also provided for determining efficient spatial and inter-temporal water management, and resulting welfare effects, for a system with consumption at significantly different elevations supplied from a renewable coastal aquifer, which is subject to salinity if over-extracted. Second essay examines the interrelationship between efficient groundwater usage and watershed conservation. Since efficiency prices are politically unattractive due to being generally higher than inefficient, status quo prices, watershed conservation may be considered as an alternative that can help to preserve the groundwater supplies by avoiding loss of recharge. By simulating the two pricing policies under alternate watershed conservation scenarios, the essay finds that watershed conservation is not likely to be beneficial without pricing reform. In addition, delay in adopting pricing reform substantially reduces the resulting gains. Third essay addresses the issue of optimally recycling of corrective revenues in a general equilibrium framework. The double dividend literature, which explores the issue of the effect of recycling of corrective revenues on the size of the corrective price or tax, makes highly restrictive assumptions that compromise the applicability of its results. Using a generalized framework, this essay seeks to clarify the double dividend issue by examining the conditions under which environmental tax may be a better or worse instrument to raise revenue compared with non-environmental taxes.