The application of compositional data analysis methods in economics has some attraction. The methodology relies upon the use of 'log-ratios' in the statistical analysis. Such an approach is not possible when the data to be analysed include observations where the observed budget share is zero. We, therefore, consider and extend the methods of compositional data analysis in the situation where the data to be analysed include observations where the observed budget share is zero. The modified compositional data methods are discussed both in statistical terms and through potential economic interpretations of the method. Further, the modified methodology is applied to the 1988-89 Australian Household Expenditure Survey yielding estimates for a system of Engel curves.

Introduction 1 2 Water trade and irrigation in the southern Murray-Darling Basin 3 Irrigation water sources and irrigation districts 3 Water entitlements and seasonal allocations 5 Utility charges 6 Quantities of water traded 8 Water trade prices 9 Constraints on water trading 11 3 Overview of the modelling approach 19 Development of a water module within TERM 20 Incorporating water trade 23 Model simulation 27 4 Long run effects of reduced water availability with trade 29 Macroeconomic effects of water trade 29 Further analysis of a specific case 30 Model design considerations 39 5 Short run effects of reduced water availability with trade 43 IV CONTENTS A Irrigation industry data B Simulations Experimental framework Simulation details C Examples of regulatory arrangements affecting water trade Regulatory arrangements in selected districts Water trading across subdistricts in the Goulburn-Murray D Data tables and simulation results References BOXES 2.1 Trading water upstream 2.2 Trading water between rivers 3.1 Regional CGE modelling of water trade and use 3.2 TERM's water module 3.3 The price of water entitlements and seasonal allocations 3.4 Water substitution assumptions 3.5 Illustrative gains from trade in water 3.6 Trade experiments conducted using TERM FIGURES 2.1 Major Irrigation Districts in the Murray-Darling Basin 2.2 Average weekly prices per megalitre for seasonal allocations in major irrigation districts 2.3 Average monthly prices for trade in water entitlements, Goulburn-Murray Water and Murray Irrigation 3.1 Irrigation areas and statistical divisions A.1 Major irrigation districts in Australia CONTENTS V TABLES 2.1 Seasonal water allocations and usage 2.2 Examples of utility charges, 2000-01 2.3 Net New South Wales trade in seasonal allocations 2.4 Net trade in water entitlements, by state 2.5 Congestion constraints on major supply networks 4.1 GDP and GRP effects of trade after water availability reductions of different magnitudes 4.2 GDP and GRP effects under different trade and water availability experiments 4.3 Net water trades among industries in the southern MDB 4.4 GRP and GDP effects under different trade experiments 4.5 Changes in regional primary factor use 4.6 Sectoral differences in value added from expanded water trade 5.1 Reductions in water availability compared to 1996-97 5.2 GRP and GDP effects of 1997-98 water availability under different trade experiments 5.3 GRP and GDP effects of 1998-99 water availability under different trade experiments 5.4 GRP and GDP effects of 1999-2000 water availability under different trade experiments 5.5 GRP and GDP effects of 2000-01 water availability under different trade experiments 5.6 GRP and GDP effects of 2001-02 water availability under different trade experiments A.1 Net water consumption for selected industries, 1996-97 A.2 List of regions and their irrigation companies A.3 Irrigation scheme entitlements in the southern Murray-Darling Basin, 2001-02 A.4 Ratios of gross trade in seasonal allocations to total allocations, and trade in entit...

The traditional approach to estimating systems of share equations is to append a multivariate normal stochastic component to the deterministi c component. The aggregation restrictions are then exploited to delete one equation and estimation is then carried out by maximum likelihood. Such an approach does not exploit the aggregation restrictions to their full extent, as there remains a non-zero probability of shares being negative or greater than unity. In this paper-we take an approach, compositiona l data analysis, and a distribution familiar to statistician s, the additive logistic normal, and apply them to the estimation of a system of demand share equations. The results of this new approach are then compared to those of the traditional approach.

In this paper, we use TERM‐Water, a bottoms‐up regional computable general equilibrium model of the Australian economy, to examine the regional effects of expanding trade of irrigation water in the southern Murray–Darling basin. We find that water trading dampens the impact of water allocation cuts on gross regional product (GRP). The benefits of introducing trading within irrigation districts are greater than those of a further expansion of trade between regions. Permitting trade of seasonal allocations allows irrigators to reallocate water in reaction to climatic conditions and water availability; and it is this flexibility that enables GRP reductions to be minimised.

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