25 Mar 2009

Water and the Central Valley

via PB, Richard Howitt (my dissertation adviser) and others have a write-up [pdf] of their estimates of the impacts of lower water supplies on the economy of the central valley.

Yes, it's the 80,000 lost jobs and $2 billion reduction in gross receipts study.

I have two comments:
  1. Their results rely on serial simulations (SWAP results fed in to REMI) of general equilibrium models. In lay terms, that means that they put some numbers together, found their relations, and then estimated the impacts of changes in one model (agricultural production) before using those results as inputs into another model (economic outcomes). These simulations are often the only way to get "reasonable" estimates of what may happen, but they are:
    • Vulnerable to mis-specification, i.e., Garbage-In, Garbage-Out
    • Impossible to verify -- because they predict the future.
    • Reasonably arbitrary and subjective -- which is why dueling economists often cannot agree on anything when they represent opposing sides in court
  2. Howitt et al. point out that south-of-Delta water markets can reduce harm from reductions in Delta exports by significant amounts (e.g., 50 percent fallowing falls to 10 percent fallowing). Good idea!
Bottom Line: It's hard to predict the future, but markets can reduce the harm when a "bad" future arrives

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