Economics of renewable resource management: An application to multipurpose dams

Reservoir sedimentation is a serious threat to the long-term economic development of countries around the world. Often, upstream soil erosion due to agricultural activity contributes significantly to the problem. Appropriately designed soil conservation practices and reservoir sedimentation management techniques are likely to help utilize resources more efficiently. These policies will also reduce environmental impacts generated from soil erosion and the need for construction of new dams. ^ This dissertation provides a general framework to examine the appropriate strategies for managing both the watershed and reservoir. The framework allows one to consider strategies at both levels simultaneously, thereby taking into account the interrelationship between the two. This research also hopes to stimulate all the parties involved in dam construction and management to consider watershed management and sediment removal at an early stage of the project. ^ The dissertation presents both theoretical and empirical analyses, and also allows dams to have more than one purpose. Within this framework, two types of policies are examined. First, the economics of reservoir level sediment management is analyzed for multipurpose dams. Case study results from the Three Gorges Dam in China and the Wonogiri Dam in Indonesia show that, under various parameters values, sediment management can help increase dams\u27 economic benefits by as much as $86.78 billion and $500 million respectively. The model is then extended to incorporate both watershed management and reservoir level sediment management. Results from the Wonogiri Dam suggest that the combination of two types of management can be used to increase social benefit and is often preferred to any one type of management alone. Unless average agricultural output price is higher than $3.50/kg, government subsidy of all investment cost and $5 per hectare is needed for inducing farmers to practice soil conservation. ^ Finally, allowing for uncertainty in the process of soil erosion and reservoir sedimentation, a simplified form of the model is also used to determine the optimal timing of a soil conservation practice. Numerical results from the Wonogiri dam show that practicing soil conservation at an appropriate time can increase economic net benefits from the dam by as much as $60 million.