Premium
Optimal path of interregional investment and allocation of water
Author(s) -
Regev Uri,
Schwartz Aba
Publication year - 1973
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 - 10.1029/wr009i002p00251
Subject(s) - shadow price , economics , investment (military) , renting , marginal cost , econometrics , capital (architecture) , productivity , marginal utility , microeconomics , economies of scale , mathematical optimization , mathematics , politics , political science , law , macroeconomics , archaeology , history
The problem of simultaneous optimization of investment in and allocation of water is investigated. A discrete time control theory is applied to formalize the model in which the interaction of regional and seasonal considerations plays the crucial role. Economic interpretation of the optimal conditions reveals the following price policy implications: Prices at two adjacent regions should differ by (at most) the cost of transportation. The general trend of the water inventory shadow price in present value is increasing over time with a decreasing rate, whereas the seasonal .peaks and troughs in water demand produce positive and negative shifts from that trend and suggest a peak load‐pricing system. The marginal productivity of water is related to rental prices of the different equipment types and to capital equipment marginal cost. The latter sets up an upper bound for water prices. Increasing returns to scale are treated by integer programing formulation when setup costs or indivisibility of projects violate the concavity of the objective function.