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Comment on ‘Water trade‐off between electric energy and agriculture in the four corners area’ by Micha Gisser, Robert R. Lansford, William D. Gorman, Bobby J. Creel, and Mark Evans
Author(s) -
Revesz Richard,
Krzysztofowicz Roman
Publication year - 1980
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/wr016i004p00830
Subject(s) - agriculture , energy (signal processing) , economic history , economics , geography , mathematics , archaeology , statistics
of estimating the sale price of water. In resource allocation problems, two distinct shadow prices need to be considered for each transaction. To a profit-maximizing prospective buyer, his shadow price of a resource represents the maximum price he should be willing to pay for a marginal unit of that resource. To a profit-maximizing prospective seller, his shadow price of that same resource represents the minimum price he should be willing to accept for a marginal unit of that resource [McKean, 1968; Margolis, 1977]. Gisser et al. [1979, p. 532] analyze the market value of water only in terms of the shadow price Pf of the farmers, the prospective sellers. That is, P/represents the decrease in the direct and indirect economic benefits of farmers caused by the sale of a marginal unit of water. A complete analysis should also consider the shadow price Pu of the electric utility, the prospective buyer. Under free market conditions the sale of x units of water will take place only if Pf(x) < Pu(x). If this inequality holds, the actual selling price P(x) will satisfy the condition