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WATER RESOURSES DEVELOPMENT AND MANAGEMENT

Technology, Economics, and Institutions

CVEN 5393/ ECON 6555

Fall 1998

Professors Chuck Howe (Economics) and Ken Strzepek (Civil Engineering)

DESCRIPTION OF THE COURSE

This course covers the economics and engineering dimensions of water resources and water systems. It is intended to prepare the participants for practice as water resources engineers or economic consultants. For those pursuing the MA/MS or Ph.D. degrees, it is prerequisite for writing a thesis/dissertation in the field.

The need for combining economic analysis with engineering and hydrology lies in two historical facts:

1. Water engineering approaches to project design and system management (river basin, urban, etc.) have typically been based on physical criteria, such as "delivery efficiency," irrigation "needs," urban "requirements," the "maximum historical flood event," reliability under the greatest drought of record, etc.; and ·

2. Economists have frequently made erroneous analyses and naive policy recommendations because they haven't understood basic hydrology, groundwater-surface water interactions, flood frequencies, or factors affecting urban system reliability.

Interdisciplinary courses always pose the problem of finding the right level for each discipline without losing or boring people from other disciplines. For this reason, you may have to have or to pick up on your own certain basics from economics and water engineering. These topics should include:

1. Economics: scarcity, broad functioning of a market economy, supply and demand, production functions, cost functions, demand analysis, welfare measures, correcting for price level changes, discounting of future values (compounding of past values), present value of a series of benefits or costs over time. Anyone not having a working knowledge of these topics should consult an introductory or intermediate level microeconomics, such as

Hal R. Varian , Intermediate Microeconomics

Jack Hirshleifer, Price Theory and Applications

Gwartney and Stroup, Microeconomics: Private and Public Choice

Byrns and Stone, Microeconomics

2. Water Resources Engineering: precipitation, evapotranspiration, runoff, aquifers, hydrographs, reservoirs, basic probability, basic statistics, point and nonpoint source pollution, BOD, DO, and waste water treatment. Anyone lacking a working knowledge of these topics should consult one of the following texts:

Linsley et al., Water-Resources Engineering; will be on reserve at the Engineering Library.

Mays, Handbook of Water Resources; will be on reserve at the Engineering Library.

3. The course presumes a knowledge of PC operation for word processing and spreadsheets , as well as the use of software packages that will be provided in class.

The basic texts for the course will be an extensive set of readings and Linsley et al. , Water-Resources Engineering. The set of readings will be placed on reserve in the Engineering Library and somewhere else that will be convenient to those on the other side of campus.

The class is scheduled to meet Tuesdays and Thursdays in Economics, Room 16, from 9:30 to I 0:45.If a more felicitous time and place can be agreed upon, we may shift. Grading will be based on Homework: 20%; Mid-

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terms (2): 20% each; Final: 20%; and Team project: 20%. The team project is always an enjoyable part of the course and an important vehicle for becoming an interdisciplinary team worker. We will decide on the topic or topics later in the semester.

COURSE OUTLINE AND ASSIGNMENTS

Introduction

Subject 1: Global Overview

Engineering Aspects:

The hydrologic cycle and global water balance

River basins of the world and the USA

Water problems of world regions

Water problems of regions of the USA

Readings:

#1. Gleick, Chapter I bk Linsley et al., Chapter 2

Economic Aspects:

Water development in U.S. history

The role of water in economic development

Readings:

#2. Howe, Chapter I #3. Howe, "Effects of Water Resource Development ... "

Problem Sets: none

Subject 2: Overview of River Basin Planning

Engineering Aspects:

River systems and interdependencies

River basin modelling

lnterbasin transfers of water

Surface water - groundwater relationships

Readings:

bk. Linsley et al., Chapter 21

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Economic Aspects:

Steps in river basin planning

Defining a "project''

The "accounting stance"

Readings:

#4. Howe, Chapter 3 #5. Booker and Young, "Economic Impacts ... "

Problem Sets: No. I

Subject 3: Economic Analysis I

Topics:

Water "institutions"

Outlines of water law

The role of prices in an economy

Market supply and demand

Economic efficiency and the concept of equity

The "arithmetic" of benefit - cost analysis: PVNB, B/C, IRR

Choosing the discount rate

Estimating benefits and costs

Readings:

#6. from Colorado Water News #7. Howe, "Institutional and Administrative Issues ... " #8. Howe, Chapter 5 #9_ Howe, Chapter 6 # JO. Howe, "The Social Discount Rate"

Problem Sets: Nos. 2 and 3.

Subject 4: Economic Analysis II

Topics:

Uses of demand function

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Nonmarket benefits and costs

The analytics of project design

Project evaluation

Project output pricing

Multiple-objective planning and evaluation (MOPE)

Readings:

#JJ. Howe, "Frontiers ... " #12. Howe, Chapter 4 #13. Howe, Chapter 2

Problem Sets: No. 4

Subject 5: Development of Surface Water Supplies

Engineering Aspects:

Basic hydrology

Rain fall - runoff relationships

Reservoir models

Hydraulic Structures

Deriving storage - yield curves

Readings:

The "Supply Side"

bk Linsley et al., Chapters 3, 7, and 8

Economic Aspects:

Costs of surface water development

The analytics of project design: application

Readings:

#14 Lof and Hardison

Problem Sets: No. 6

Subject 6: Groundwater Supplies and Conjunctive Management of Surface Water and Groundwater

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Engineering Aspects:

Groundwater hydrology

Tributary and nontributary systems

Groundwater models

Artificial recharge

Readings:

bk Linsley et al., Chapter 4

Economic Aspects:

Economics of renewable and nonrenewable groundwater

Colorado regulations for tributary and nontributary water

The case of the Ogallala formation

The case of the South Platte

Readings:

#15. "Digital Computer Simulation" #16. " .. . High Plains Region" #17_ "Colorado's Law of Underground Water ... "

Problem Sets: ? ?

The "Demand Side"

Subject 7: Irrigated Agriculture

Engineering Aspects:

Soil types and plant physiology

Soil water chemistry

Water application methods

Return flows

Water pollution

Readings:

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bk Linsley, Chapter 4

Economic Aspects:

Crop yieldfunctions

Optimizing water application

Farm management models: linear programming

Effects of Agricultural policies

Readings:

#18. "Technical Elements ... " #19. "Irrigation-Induced Water Quality Problems" #20. " ... Federal Irrigation Policy" #21. "Paying the Farm Bill" #22. "Rural Development"

Problem Sets: Nos. 7 and 8

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Subject 8: Municipal Supply Systems, Wastewater Treatment, and Water Demands

Engineering Aspects:

Supply system components

Hydraulic design

Sizing components

Wastewater collection and treatment

Urban runoff and drainage

Readings:

bk Linsley et al., Chapters 15 and 19 #23. "Urban Wastewater Management Planning" #24. "Metropolitan ... Development"

Economics Aspects:

The peak period problem

Residential demands

Rate structures

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Economics of system reliability

Economics of nonprice conservation

Economics of metering

Readings:

#25. "The Peak Period Problem" # 11l1l p ' ' II 26. rrater ricing ... #27 "I t o.FP · " . mpac 'J nee ... #28. "Price and Rate Structures" #29. "Value of Reliability"

Problem Sets: 9 and 10

Subject 9: Industrial, Commercial, and Public Water Uses

Engineering Aspects:

Major water-using industries

Technologies of industrial water use: general characteristics, sources, intake treatment, discharge treatment, recirculation

Case studies: manufacturing, mining, thermal power, etc.

Readings: ??

Economic Aspects:

Industrial demand functions

Industrial water pricing

Readings:

#30. "Estimating Industrial Water Demands"

Problem Sets: None

Subject 10: Instream Uses: Hydropower, Navigation, Recreation, and Ecosystem Values

Engineering Aspects:

Basic hydraulics of hydropower

Pump-storage projects

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Mini-projects

Operating rules

U.S. waterway structure

Factors in flotilla pe,formance

Restoration of rivers and riparian ecosystems: the case of Glen Canyon

Readings:

bk Linsley et .al., Chapter 17 Corps of Engineers Reports (not in packet) #31_ "Operation of Glen Canyon Dam"

Economic Aspects:

The wholesale peak problem

Economics of wholesale pricing

Power and dilution foregone through consumption uses: the case of the Upper Basin of the Colorado River

Costfunctionsfor waterway transportation

Nonmarket valuation: TC and CVM

Readings:

#32. "Frameworkfor Inland Waterways " #33_ ''Keeping the Waters Flowing" #34_ "Economic Value of Instream Flow" #35_ ""Mono Lake"

Problem Sets: No. 11

Subject 11: Water Quality

Engineering Aspects:

Current U.S. situation

Point and nonpoint sources

Control at sources

Wastewater treatment methods

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Modeling water quality

Current regulatory scheme: SIPS, permits, TMDL, etc.

Readings: ??

Economic Aspects:

Economic efficiency model

Cost-effectiveness model

Readings:

#36. "Static Systems Model" #37, "Economic Analysis of Clean Water Act Issues"

Problem Set: No. 12

Subject 12: Flood Control

Engineering Aspects:

Flood hydrology

Structural measures

Nonstructural measures

Readings:

bk Linsley et al. , Chapters 5 and 20

Economic Aspects:

Measuring flood control benefits

U.S. flood insurance program

Readings:

#38. "Floodplain Management in the United States" #39. " .. . Economics of Flood Protection"

Problem Sets: Flood control case study

Subject 13: Regional Impacts of Water Projects and Water Transfers.

Topics:

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direct benefits and costs

indirect or secondary benefits and costs

''pecuniary" benefits and costs and the real costs of change

input-output models

case study of the Arkansas River Valley of Colorado

Readings:

#40 " ... Input-Output Models #41 "Economic Impacts of Agric.to-Urban Transfers:the Arkansas River Valley

Problem Set: review the calculations of set# 12

Subject 14: Macro-Institutional and Financing Issues.

Topics:

Jurisdictional issues: case of the Colorado River

interstate compacts

cost allocation methods

cost sharing practices (i.e.repayment practices)

Readings:

#42, "Interstate River Compacts #43, " .. . Cost Allocation #44, "Evaluating the Financial Plan of the Project #45, " ... Colorado-Big Thompson Project #46, "Public Intervention .. . "

Problem Sets: None.

Subject 15: Water Markets.

Topics:

interregional transfers and efficiency gains

agriculture-to-urban water transfers

water banking

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option and spot markets

protecting public values under tradable permit (water right) systems

effects of land ownership on water marketing

Readings:

#47, " .. .Interregional Transfers .. . " #48, "Moving Ag. Water to Cities ... " #49, "Option and Spot Price Water Markets ... " #50, "Protecting Public Values ... " #51, "Irrigation Districts and Water Markets"

Subject 16: A Summing Up and Final Case Study.

Topics:

ex-post analysis

general equilibrium models

Readings:

# 52, "A Summing Up ... "

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