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Options of optimal dam capacity under externality and uncertainty

Harold Houba, Kim Hang Pham Do and Xueqin Zhu
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Xueqin Zhu: Environmental Economics and Natural Resources Group, Wageningen University, Wageningen, The Netherlands

No 1807, Discussion Papers from School of Economics and Finance, Massey University, New Zealand

Abstract: This paper analyses the relation between optimal dam capacity and water management in a unified approach. Having extended a hydropower generation model, we investigate the optimal dam capacity for multi-functional dams such as providing infrastructure for industrial and households water use, conjunctive use of hydropower generation and irrigation; storing water in the wet season for use in the dry season, and mitigating flooding damages. Our optimal solution shows that optimal dam capacity is characterized by the marginal benefits of hydropower generation, the marginal costs of flooding damages, and the constraining factors. We also provide the implication of the optimal solution for three real world cases of dam construction, i.e. for flood control, for irrigation and for hydropower generation.

Keywords: river-basin management; dam capacity; welfare optimisation; externalities (search for similar items in EconPapers)
JEL-codes: Q40 O21 C71 C72 D62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-env
Date: 2018
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