Abstract
Climate change, increasing demand for water, higher environmental standards and inelastic water supply suggest that future drought response in Southern Europe would require more efficient management of water use. In this context, there is a pressing need for a better understanding of the economic impacts of irrigation restrictions, including their microeconomic and broad economic repercussions. This paper connects a multi-attribute Revealed Preference Model working at an agricultural district level with a regionally calibrated supply and use model that combines nonlinear programming and input-output modeling techniques to address water allocation issues. To the best of our knowledge, this is the first time these two modeling approaches are combined in this fashion. Methods are illustrated with an application to the Lower Po River Basin (LPRB) in the Emilia Romagna Region, Italy. Results show that irrigation restrictions generate rising incremental losses in the agricultural districts of the LPRB, which are amplified through negative inter-sectorial feedbacks at a regional level. Contraction of production in Emilia Romagna results in an excess demand situation that propels the production of substitute goods elsewhere in Italy, partially but not fully compensating economic losses in the region. Methods and results offer a basis for assessing tradeoffs in irrigation restrictions and related adaptations, for climate change included.
Highlights
Profit and risk avoidance are relevant in all 30 Agricultural Districts (ADs), while total labor avoidance is relevant in explaining the behavior of 18 ADs
The behavior of a representative farmer of Pianura di Reggio Emilia is largely explained by his/her avoidance of management complexities (α3 1⁄4 0:254), which typically relates to ADs with a traditional agricultural structure
Larger risk aversion coefficients such as those observed in Alto Reno (α2 1⁄4 0:165) and Pianura di Modena (α3 1⁄4 0:155) show a higher willingness to sacrifice the provision of other attributes if this contributes to limiting risk
Summary
Water demand for irrigating crops is expected to increase by more than 40% by 2080 (IPCC 2014), accelerating the observed expansion in irrigation infrastructure over the past 50 years (EEA 2009). As the competition among economic water uses tightens up, and the costs of exploiting new water sources increase, it is generally expected that water restrictions and rationing will be put in place more often (OECD 2014). In this context, there is a pressing need to better understand the economic impacts of irrigation restrictions, including their micro- and macro-economic implications (UN 2016). Building on recent advances in systems analysis, this research develops a modeling framework that captures the rationale behind farmers’ behavior and responses, and represents the complex interactions among sectors and regions within an economy, with the aim of predicting both the local and broad economic repercussions of irrigation constraints
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