Authors: Glyn Wittwer and Janine Dixon
Infrastructure upgrades appear superficially to be a politically acceptable way of increasing environmental flows in the Murray-Darling Basin. From an economic perspective, their costs and benefits should be compared with other policy instruments. We do so using TERM-H2O, a dynamic regional CGE model with considerable basin detail. Voluntary and fully compensated buybacks are much less costly than upgrades as a means of obtaining a target volume of environmental water. Even during drought, when highly secure water created by infrastructure upgrades is more valuable, the upgrades remain too costly. As an instrument of regional economic management, infrastructure upgrades are inferior to public spending on health, education and other services in the basin. For each job created from upgrades, the money spent on services could create between three and four jobs in the basin.
JEL classification: C54, Q11, Q15.
Please cite the later published version in:
'Effective use of public funding in the Murray-Darling Basin: a comparison of buybacks and infrastructure upgrades', Australian Journal of Agricultural and Resource Economics 57(2):399-421, July 2013. DOI: 10.1111/1467-8489.12001
Keywords: CGE modelling, water buybacks, regional economies.
Working Paper Number G-228 can be downloaded in PDF format.
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