Regional Environmental Policy and the Distribution of Economic Impacts among Rural Households

Abstract

In this paper a regional input-output model is used to evaluate the distribution of short-run and long-run economic impacts of regional level environmental policy decisions among urban and rural household income classes. Both demand and price changes are analyzed. Demand changes are modeled as increases in final demand, and price changes are analyzed as exogenous shocks. In the short run, regional prices do not respond to the exogenous price shocks but, in the long run, the regional prices can vary following input substitution in a Cobb-Douglas production function. An income allocation matrix distributes to income classes the wage and nonwage income changes generated by the input-output formulations. A case study is presented that involves efforts to enhance fish populations in the Columbia River Basin in the US Pacific Northwest. The policy analysis shows that the type of initial policy impact (change in final demand or in prices) as well as the time frame considered (short or long run) can influence the final distribution of economic impacts among urban and rural income classes. The approach outlined here thus allows decisionmakers to explore several aspects of the income effects of a project across disaggregated segments of an affected population.