Modelling Water in Economic Activity

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Water as an input: Partial versus General equilibrium analysis

Partial equilibrium analysis may be the best approach for analysing economic impacts for small changes in water attributes (supply, quality, timing, flow, prices) that are unlikely to affect prices of other goods and services throughout the economy in an appreciable manner. This is because, partial equilibrium approaches hold other prices and markets constant, while focusing on a specific water use. Partial equilibrium analysis has been applied to hedonic price models for purposes of property valuation, stated and revealed preference studies, non-market valuation of water to recreation and ecosystem services, estimation of production functions or demand functions, the residual methods (subtracting all other input costs from total revenue), and linear programming input-output models where prices are fixed (Young, 2005). However, for non-marginal changes in water supplied or pricing associated with different types of water policies, the direct and secondary effects on other commodity and factor markets may be of consequence throughout an economy. Partial equilibrium approaches cannot therefore account for any resulting secondary effects. Therefore estimates of changes in water demand and prices from partial equilibrium approaches could lead to inaccurate estimates of changes in water values, depending on the extent and type of linkages in the economy. Furthermore, potential changes in prices in other commodity and factor markets in turn also affect incomes and can have fiscal impacts on the different agents in the economy. CGE models are specifically built to represent these interrelationships among markets and sectors in an economy, where water pricing and supply can affect multiple sectors in non-marginal ways. CGE models provide an analysis such that the impact of changes in any one (or combination of) sector(s) can be traced through to predict changes that will result throughout the economy.

Emerging policy issues

The Ugandan economy is currently experiencing water-related challenges emanating from the volatile changes in climate as well as changes in population and economic activity. These changes are increasingly putting a strain on the availability of water resources. This Chapter demonstrates the multiplicity of links between water resources and the economy with a view to highlighting the fact that water as an economic resource needs effective allocation and management. The results from the water accounts show that water consumption within the economy is 4.2 billion m3, with the agricultural sector accounting for an estimated 63 percent of consumption. Total water demand stands at approximately 11 percent of total water availability. Whereas this figure seems to be low, projections indicate that the country is poised to experience severe water scarcity in the near future. This calls for the need to actively link the water policies with the policies of the other sectors, guided by their development plans. This will be the only sure way of achieving efficient and sustainable use of the existing water resources.

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Chapter One
General Introduction
1 Setting the context
2 Objectives and contribution of the thesis
3 Outline of the thesis
Chapter Two
Modelling Water in Economic Activity
1 Introduction
1.1 Partial equilibrium models
1.2 General equilibrium models
1.3 Water as an input: Partial versus General equilibrium analysis
2 A summary of empirical evidence
2.1 Emerging research issues from the literature
3 Incorporating water into a CGE model
3.1 Practical implementation of a Water-CGE model
3.2 Development of the UgAGE-Water model
Chapter Three
Water Resource Accounting for Uganda: Use and Policy Relevancy
1 Introduction
1.1 Objectives
2 Situational analysis of water resources in Uganda
3 Legal institutional and policy framework for the water sector in Uganda
3.1 Policy, legal, and strategic framework
3.2 Reform measures in the water and sanitation sector
4 Water resource accounting
4.1 Data
4.2 Development of the water accounts
4.3 Results, analysis and discussion
4.4 Summary of findings from the resource accounting
5 Policy analysis and relevance of water resource accounting
5.1 Structure of the proposed framework
6 Conclusion
7 Emerging policy issues
Chapter Four
Counting the Cost of Drought induced Productivity losses in an Agro-based Economy: The Case of Uganda
1 Introduction
1.1 Contribution
2 Situational analysis of drought prevalence in Uganda
3 Literature review
4 Methodology
4.1 UgAGE theory and database
4.2 Model closure
4.3 Simulation design
5 Simulation results and discussion
5.1 Macro results
5.2 Losses in industry output
5.3 Decomposition analysis of the changes in industry output
6 Conclusion and emerging policy issues
Chapter Five
Water Taxation and the Double Dividend Hypothesis
1 Introduction
2 The water sector and Uganda’s economy
2.1 Tariff levels and pricing policy
2.2 Institutional framework for water resources management in Uganda
3 Literature review
4 Methodology
5 Policy scenarios
5.1 Policy variables
5.2 Model closure
6 Results and discussion
6.1 Macroeconomic level results
6.2 Environmental effects
6.3 Economic effects
6.4 Decomposition of the changes in industry output
7 Conclusion and emerging policy issues

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