Hydro-economic models: Concepts, design, applications, and future prospects

Abstract

Future water management will shift from building new water supply systems to better operating existing ones. Given these goals, hydro-economic models that show the dynamic variation of water values in time and space will be increasingly used to suggest ways to address water scarcity and reduce water conflicts. Hydro-economic models represent spatially distributed water resource systems, infrastructure, management options and economic values in an integrated manner. In these tools water allocations and management are either driven by the economic value of water or evaluated by that measure to provide policy insights and reveal opportunities for better management. A central concept is that water demands are not fixed requirements but rather functions where quantities of water use at different times have varying total and marginal economic values. This paper reviews techniques to characterize the economic value of water use and include such values in mathematical models. We identify the key steps in model design and diverse problems, formulations, levels of integration, spatial and temporal scales, and solution techniques addressed and used by over 60 hydro-economic modeling efforts dating back 45-years from all over the world. We list current limitations of the approach, suggest directions for future work, and recommend ways to improve policy relevance so promising management strategies and policy insights identified by hydro-economic models can be better employed.

Integrated assessment of policy interventions for promoting sustainable irrigation in semi-arid environments: A hydro-economic modeling approach

“…The combination of economic insights with hydrology and engineering processes offers a more realistic and coherent framework to analyze the potential implications of water management and climate-related issues for all water users (Brouwer and Hofl<es, 2008;Medellín-Azuara et al, 2009). Hydro-economic models improve decision-making by providing relevant insights in terms of water valuation and allocation, integrated water planning and institutional design, and have been successfuUy used in a wide variety of settings as reported in Harou et al (2009). Recent hydro-economic model applications have been developed to study water quality problems and environmental restoration issues (e.g.…”

Ecological-economic assessment of the effects of freshwater flow in the Florida Everglades on recreational fisheries

“…These penalty estimates serve as useful decision-support metrics for water resource managers making regional water resource allocations. While the conceptual model of the penalty function has been used in hydro-economic optimization (Harou et al, 2009;Jenkins et al, 2004;Newlin et al, 2002), its application to ecosystem services in terms of recreational fisheries is novel. In particular, the flexibility of this approach lends itself to applications to management scenario analysis and evaluation of potential restoration projects.…”

Integrated hydro-economic models as a tool for the sustainable management of water resources

“…Most hydro-economic models include hydrological data, water infrastructure, economic water demand, operational costs, and operational rules (4). The hydrological data, in the broad sense, include hydrological [surface water] and hydrogeological [groundwater] parameters, rainfall, inflow and drainage or supply of the observed area.…”

“…Defining economic water demand can be done with functions that provide information on gross economic revenue within a certain timeframe of modeling (5). Operating costs include pumping, treating, artificial power, and any other costs related to water transport (4). These main components of the hydro-economic model can be supplemented by complementary elements of the model, such as polluting emissions, environmentally sensitive areas, but also institutional and legislative elements, such as constraints stemming from national and international agreements and national legislation.…”

“…are defined within separate modules, which are integrated into a unique hydro-economic model. There are two main approaches to the integration of individual modules: modular and holistic (2,4). Modular approach implies the use of multiple models, i.e.…”