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Water‐quality trading: Can we get the prices of pollution right?
Author(s) -
Konishi Yoshifumi,
Coggins Jay S.,
Wang Bin
Publication year - 2015
Publication title -
water resources research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.863
H-Index - 217
eISSN - 1944-7973
pISSN - 0043-1397
DOI - 10.1002/2014wr015560
Subject(s) - damages , nonlinear system , scheme (mathematics) , environmental science , economics , econometrics , computer science , natural resource economics , mathematics , physics , law , mathematical analysis , political science , quantum mechanics
Water‐quality trading requires inducing permit prices that account properly for spatially explicit damage relationships. We compare recent work by Hung and Shaw (2005) and Farrow et al. (2005) for river systems exhibiting branching and nonlinear damages. The Hung‐Shaw scheme is robust to nonlinear damages, but not to hot spots occurring at the confluence of two branches. The Farrow et al. (2005) scheme is robust to branching, but not to nonlinear damages. We also compare the two schemes to each other. Neither dominates from a welfare perspective, but the comparison appears to tilt in favor of the Farrow et al. scheme.