Abstract
We formalise a dynamic water pricing model as a tool for increasing social surplus in short-term water allocations and long-term water supply planning and investments. We calculate, in monetary terms, the intertemporal risk that current water uses impose on future water availability, termed as the Risk-Adjusted User Cost (RAUC), given multi-period droughts. Our model is calibrated to the water supply system in the Australian Capital Territory. Results show that the RAUC may be a substantial proportion of the cost of supplying water, and incorporating it in the water price can result in long-term welfare gains.
Original language | English |
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Article number | 100181 |
Journal | Water Resources and Economics |
Volume | 35 |
DOIs | |
Publication status | Published - Jul 2021 |