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Institutional and Economic Complications of River Basin Water Quality Management: The Case of Selenium in Colorado's Lower Arkansas River Valley

Misti Sharp and Dana Hoag

No 170389, 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota from Agricultural and Applied Economics Association

Abstract: For over a decade, engineers and scientists have been studying water flow and quality in Colorado’s Lower Arkansas River Valley (LARV). Key findings indicate that dissolved selenium (Se) in the water system exceeds the chronic standard, which can endanger aquatic life and livestock. The presence of this naturally occurring element is exacerbated by excess irrigation water and nitrogen seeping into the groundwater and interacting with shale formations, producing harmful levels of Se. Nonpoint source pollution such as Se can be mitigated by Best Management Practices (BMPs) that would reduce the amount of Se that reaches the river. Four BMPs are under consideration: improved irrigation technology, sealing and/or lining of the irrigation canals, lease fallowing and reduced fertilizer loading. These solutions are a mixture of private and public efforts in order to integrate the underlying incentive structure and modeling capabilities. The objective of this study is to map the trade-off between costs of BMP implementation and Se reduction in a traditional Pareto frontier, but with the added innovation to account for institutional constraints (e.g. water law) that affect the slope, continuity and concavity of the tradeoff curve. The purpose is to examine how policies and economic incentives of farmers and mutual canal companies influence the efficiency of tradeoffs that are technically, but not necessarily institutionally, attainable. For example, the legal environment is in place for land owners to lease water rights to the municipalities; however, the relationships that would be necessary to make this a possible solution may not be present. These institutional constraints are examined to determine the impact they have on the ability to trade off reduced Se for farm profits. A companion study in engineering utilizes regional-scale groundwater flow and reactive transport models to simulate Se loading to the river for 3 implementation levels of the 4 considered BMPs as well as a few targeted combinations of the BMPs in the river basin. Enterprise budgets are utilized to identify costs of the BMPs under various farm characteristics. Using the outputs from the numerical hydro-chemical models and the enterprise budgets, a traditional Pareto trade-off curve is mapped showing the technical feasibility of trading off BMP costs for reduced Se. Finally, institutional limitations are added, and the curves adjusted, to determine the opportunity costs of institutional constraints. Institutional constraints and incentive structures do impact the costs associated with the BMPs as well as the relative impact the BMPs can have on Se reduction. Moreover, they introduce discontinuities and non-concavities in the trade-off curve and impact society’s ability to benefit as a result of the policy due to the complex interaction of private incentives that are influenced by the institutional setting. This method provides an attractive platform from which to demonstrate gains that could be made by addressing constraints.

Keywords: Environmental Economics and Policy; Institutional and Behavioral Economics; Production Economics (search for similar items in EconPapers)
Pages: 17
Date: 2014
New Economics Papers: this item is included in nep-agr and nep-env
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DOI: 10.22004/ag.econ.170389

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Handle: RePEc:ags:aaea14:170389