Water Resources Research Act Program

Details for Project ID 2009ID136B

Community Economic Impacts of Water Transfer in the Magic Valley

Institute: Idaho
Year Established: 2009 Start Date: 2009-03-01 End Date: 2011-02-28
Total Federal Funds: $19,961 Total Non-Federal Funds: $39,923

Principal Investigators: Phillip Watson, Stephen Cooke

Project Summary: This research examines the general equilibrium implications of economic and population growth on a fixed (or exogenously determined) total supply of available water in the Magic Valley Basin in Idaho. Instead of looking at the effects of increased demand for water on a fixed allocation regime, we allow for transfers of water between agricultural and municipal water users based on the respective factor demand for water across the economy. The study utilizes an 18-sector computable general equilibrium (CGE) model, where water is incorporated as a primary factor of production for agricultural operations and for a municipal water supply sector, but as an intermediate input for all other sectors. Differing consumptive water use rates are applied to the sectors to account for water that is applied but not consumed, thus reentering the supply pool. Agricultural households are modeled as owning the water and accruing the associated returns to the water either as a factor of production or as a rental rate from leasing the water to municipal water users. The effects of economic and population growth on water Allocations and the impacts on both agricultural households and municipal households are then examined. Prior research has been undertaken to investigate the economic impacts of water use restrictions in the Eastern Snake River Plain using Input-Output models (Snyder and Coupal 2005, Hazen and Ohlensehlen 2004a, Hazen and Ohlensehlen 2004b) Findings from these studies differ significantly due to the choices made by the respective researchers as to the relationships between water supply constraints and agricultural output. In an Input-Output model this relationship must be estimated exogenously outside of the model, as Input-Output models do not handle supply side impacts directly. This research is differentiated from previous estimates of the impacts of irrigation water by the incorporation of an improved economic model and more sophisticated treatment of water supply and demand compared to prior studies (CGE is more general and flexible that the Input-Output Models). Objectives: Develop a CGE model for the Magic Valley that incorporates water as a primary factor of production for agricultural and municipal water users. The effects of economic growth on water demands will be investigated as well as the economic impacts of transferring water between differing uses as the relative values for water change. Develop a CGE model of the economy of the Magic Valley Develop a water use equation for how water is used and transferred in the region Calculate the initial price of water as well as the shadow value of water Estimate the impacts on agricultural producers, third party impacts, and distributional impacts on households of water transfers