Bioeconomic models are analytical tools that integrate biophysical and economic models. These models allow for analysis of the biological and economic changes caused by human activities. The biophysical and economic components of these models are developed based on historical observations or theoretical relations. Technically these models may have various levels of complexity in terms of equation systems considered in the model, modeling activities, and programming languages. Often, biophysical components of the models include crop or hydrological models. The core economic components of these models are optimization or simulation models established according to neoclassical economic theories. The models are often developed at farm, country, and global scales, and are used in various fields, including agriculture, fisheries, forestry, and environmental sectors. Bioeconomic models are commonly used in research on environmental externalities associated with policy reforms and technological modernization, including climate change impact analysis, and also explore the negative consequences of global warming. A large number of studies and reports on bioeconomic models exist, yet there is a lack of studies describing the multiple uses of these models across different disciplines.
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Bioeconomic Models
Ihtiyor Bobojonov
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Moving to General Equilibrium: The Role of CGEs for Economic Analysis of Water Infrastructure Projects
Kenneth M. Strzepek and James E. Neumann
The desire of policymakers and public finance institutions to understand the contribution of water infrastructure to the wider economy, rather than the value of project-level outputs in isolation, has spawned a multidisciplinary branch of water resource planning that integrates traditional biophysical modeling of water resource systems with economy-wide models, including computable general equilibrium models. Economy-wide models include several distinct approaches, including input–output models, macro-econometric models, hybrid input–output macro-econometric models, and general equilibrium models—the term “economy-wide” usually refers to a national level analysis, but could also apply to a sub-national region, multi-nation regions, or the world. A key common characteristic of these models is that they disaggregate the overall economy of a country or region into a number of smaller units, or optimizing agents, who in turn interact with other agents in the economy in determining the use of inputs for production, and the outcomes of markets for goods. These economic agents include industries, service providers, households, governments, and many more. Such a holistic general equilibrium modeling approach is particularly useful for understanding and measuring social costs, a key aim in most cost–benefit analyses (CBAs) of water infrastructure investments when the project or program will have non-marginal impacts and current market prices will be impacted and an appropriately detailed social accounting matrix is available. This article draws on examples from recent work on low- and middle-income countries (LMICs) and provides an outline of available resources that are necessary to conduct an economy-wide modeling analysis. LMICs are the focus of larger water resource investment potential in the 21st century, including large-scale hydropower, irrigation, and drinking water supply. A step-by-step approach is illustrated and supports the conclusion that conditions exist to apply these models much more broadly in LMICs to enhance CBAs.
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Review of the State of the Art in Analysis of the Economics of Water Resources Infrastructure
Marc Jeuland
Water resources represent an essential input to most human activities, but harnessing them requires significant infrastructure. Such water control allows populations to cope with stochastic water availability, preserving uses during droughts while protecting against the ravages of floods. Economic analysis is particularly valuable for helping to guide infrastructure investment choices, and for comparing the relative value of so called hard and soft (noninfrastructure) approaches to water management.
The historical evolution of the tools for conducting such economic analysis is considered. Given the multimillennial history of human reliance on water infrastructure, it may be surprising that economic assessments of its value are a relatively recent development. Owing to the need to justify the rapid deployment of major public-sector financing outlays for water infrastructure in the early 20th century, government agencies in the United States—the Army Corps of Engineers and the Bureau of Reclamation—were early pioneers in developing these applications. Their work faced numerous technical challenges, first addressed in the drafting of the cost-benefit norms of the “Green Book.” Subsequent methodological innovation then worked to address a suite of challenges related to nonmarket uses of water, stochastic hydrology, water systems interdependencies, the social opportunity cost of capital, and impacts on secondary markets, as well as endogenous sociocultural feedbacks. The improved methods that have emerged have now been applied extensively around the world, with applications increasingly focused on the Global South where the best infrastructure development opportunities remain today.
The dominant tools for carrying out such economic analyses are simulation or optimization hydroeconomic models (HEM), but there are also other options: economy wide water-economy models (WEMs), sociohydrological models (SHMs), spreadsheet-based partial equilibrium cost-benefit models, and others. Each of these has different strengths and weaknesses. Notable innovations are also discussed. For HEMs, these include stochastic, fuzz, and robust optimization, respectively, as well as co-integration with models of other sectors (e.g., energy systems models). Recent cutting-edge work with WEMs and spreadsheet-based CBA models, meanwhile, has focused on linking these tools with spatially resolved HEMs. SHMs have only seen limited application to infrastructure valuation problems but have been useful for illuminating the paradox of flood management infrastructure increasing the incidence and severity of flood damages, and for explaining the co-evolution of water-based development and environmental concerns, which ironically then devalues the original infrastructure. Other notable innovations are apparent in multicriteria decision analysis, and in game-theoretic modeling of noncooperative water institutions.
These advances notwithstanding, several issues continue to challenge accurate and helpful economic appraisal of water infrastructure and should be the subject of future investigations in this domain. These include better assessment of environmental and distributional impacts, incorporation of empirically based representations of costs and benefits, and greater attention to the opportunity costs of infrastructure. Existing tools are well evolved from those of a few decades ago, supported by enhancements in scientific understanding and computational power. Yet, they do appear to systematically produce inflated estimations of the net benefits of water infrastructure. Tackling existing shortcomings will require continued interdisciplinary collaboration between economists and scholars from other disciplines, to allow leveraging of new theoretical insights, empirical data analyses, and modeling innovations.