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Defining Tradable Water Entitlements and Allocations: A Robust System


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Robust systems are characterized by a capacity to recover gracefully from the whole range of exceptional inputs and situations in a given environment. They have a connotation of elegance. This paper will highlight the importance of separating the different elements of any tradable property entitlement and allocation system into its component parts. The result is a constellation of institutional arrangements that can be expected to last, to withstand the test of time. Often, considerable reform is required to put in place robust systems. Using examples from Australia, this paper will highlight the importance of sequencing implementation of the reforms necessary to put robust systems in place. Robustness is achieved by using three instruments rather than one instrument to allocate water and control use, and coupling these three instruments with three separate planning instruments.
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Canadian Water Resources Journal Vol. 30(1): 65–72 (2005) © 2005 Canadian Water Resources Association
Revue canadienne des ressources hydriques
Mike Young1 and Jim McColl1
1 Policy and Economic Research Unit, CSIRO Land and Water, Adelaide, Australia
Submitted August 2004; accepted December 2004. Written comments on this paper will be accepted until
September 2005.
Defining Tradable Water Entitlements and Allocations:
A Robust System
Mike Young and Jim McColl
Abstract: Robust systems are characterized by a capacity to recover gracefully from the whole range
of exceptional inputs and situations in a given environment. They have a connotation of elegance.
This paper will highlight the importance of separating the different elements of any tradable property
entitlement and allocation system into its component parts. The result is a constellation of institutional
arrangements that can be expected to last, to withstand the test of time. Often, considerable reform is
required to put in place robust systems. Using examples from Australia, this paper will highlight the
importance of sequencing implementation of the reforms necessary to put robust systems in place.
Robustness is achieved by using three instruments rather than one instrument to allocate water and
control use, and coupling these three instruments with three separate planning instruments.
Résumé : Les systèmes robustes se caractérisent par la capacité de se remettre progressivement d’un
éventail complet de situations et d’entrées exceptionnelles dans un contexte donné. Ils possèdent une
connotation d’élégance. La présente communication soulignera l’importance de la division, en parties
constituantes, des différents éléments de tout droit de propriété négociable et du système de répartition.
Il en résulte une constellation d’arrangements institutionnels qui en temps normal devraient s’avérer
durables et résister à l’épreuve du temps. Souvent, la mise en place de systèmes robustes demande des
réformes considérables. S’appuyant sur des exemples de l’Australie, cette communication fera ressortir
l’importance de la mise en séquence de l’adoption des réformes nécessaires à la mise en place des systèmes
robustes. La robustesse s’obtient grâce au recours à trois instruments plutôt qu’à un seul instrument pour
l’affectation des ressources en eau et pour le contrôle de l’utilisation de l’eau, et par le couplage de ces
trois instruments avec trois instruments de planification distincts.
Tradable permit and allocation systems, and other
market-based instruments, are being used around
the world to help deliver environmental and natural
resource policy outcomes at less cost than has previously
been the case. The focus of this paper is not on the case
for and against the use of these instruments. Rather,
it is about the design of such instruments to deliver
maximum benefits:
66 Canadian Water Resources Journal/Revue canadienne des ressources hydriques
© 2005 Canadian Water Resources Association
across heterogeneous landscapes;
through time as circumstances change; and
when several “objectives” are being pursued
and several “problems” are being managed
Essentially, the paper aims to set out the design
characteristics of tradable permit and allocation systems
that will deliver maximum benefits and are likely to
stand the test of time because their foundations are
robust. Although these robust systems apply to all
forms of resource use, this paper focuses on water
management issues, such as climate change, land-use
change, groundwater connectivity, and the need to
promote investment; issues that conventional systems
find difficult to deal with.
Robustness is defined in the jargon dictionary as a
system that has “demonstrated an ability to recover
gracefully from the whole range of exceptional inputs
and situations in a given environment.” The dictionary
goes on to observe that robust systems are one step
below bulletproof, and that they carry “the additional
connotation of elegance in addition to just careful
attention to detail” (Anon., 1992).
Robust systems endure without the need to change
the foundations upon which they are built. They inspire
confidence. They persist, are adaptable and can stand
the test of time (Young and McColl, 2003a). Reform
or revision of them is not normally on any political
agenda. They have an architecture that can be expected
to produce efficient and politically acceptable outcomes
in an ever-changing world ( Jen, 2003).
The first observation made is that, at least in Australia,
it is wiser to describe such water systems as tradable
permit, entitlement or allocation systems and not
describe them as tradable property right systems. The
words “property rights” have different connotations in
different audiences and disciplines. Communication is
easier if one uses terms that have the same meaning to
all involved in a discussion. In most cases, the debate
is really about the nature of peoples’ interestsin a
resource or an “opportunity”.
The second observation is that greater progress is
possible if such instruments are described as market-
based rather than economic instruments. The key
characteristic of market-based instruments is that they
involve buying and selling. The establishment of such
a trading market, however, is heavily dependent upon
complex legislative and administrative arrangements.
Often, instrument design also relies on a considerable
amount of ecological science. When one replaces the
word “economic” with the word “market”, lawyers,
ecologists and other professionals do not feel dis-
enfranchised. After all, these instruments are as much
legal as they are economic.
While these observations may seem trivial, it is
this attention to detail that often makes the difference
between consignment of a proposition to academic
libraries or adoption and use in the real world.
Two Principles and a Theorem
The critical building blocks for the design of the robust
instruments of natural resource and environmental
management consists of two principles and a theorem.
The Tinbergen Principle
Tinbergen was able to show that there is a need for at
least as many instruments of control as there are goals
or important dimensions to a problem. Jan Tinbergen
was awarded the Nobel Prize in Economics (1959)
partly for developing this concept (Tinbergen, 1952).
The Tinbergen Principle is usually talked about by
those interested in macro-economic policy. A separate
instrument must be used to address each policy goal,
objective or target. The Tinbergen Principle suggests
that the answers to the design of tradable property
entitlement, allocation and resource use management
systems lie more with robust separation arrangements
than they do with the development of integrated
(fuzzy) natural resource management systems (Young
and McColl, 2002; 2003c).
If a system is to be robust in the sense that it
will withstand the test of time, it must be Tinbergen
consistent. That is, there must be as many instruments
of control as there are important dimensions to a
Young and McColl 67
© 2005 Canadian Water Resources Association
problem. Another way of expressing this important
concept is to state that “the variables in any workable
solution must match the number in the problem”
(Krehm, 2001).
Mundell’s Assignment Principle
The second principle of particular relevance to
the design of tradable entitlement and allocation
systems is Mundell’s principle of effective market
classification. Developed by Robert Mundell
another Nobel Prize winning economist (1999) —
this principle states that if outcomes are to remain
optimal through time, instruments need to be paired
with the objectives “on which they have the most
influence”. If this is not followed, there will develop a
tendency either for a cyclical approach to equilibrium
or for instability (Mundell, 1960; 1962). Mundell’s
principle is perhaps more effectively described as an
“assignment principle”.
The Coase Theorem
The third building block in the development of a
robust entitlement, allocation and management system
comes from another Nobel Lauriat (1991), Robert
Coase. The much debated Coase Theorem stipulates
that if the transaction costs associated with the transfer
of property from one person to another are very low,
or effectively zero, then an efficient outcome can be
achieved irrespective of the initial distribution. The
clue from this theorem is that it is very important to
design a system so that the transaction costs of trading
are very low. If the constellation of instruments used to
deliver trade-offs involves low transaction costs then
they should be able to produce dynamically optimal
outcomes as values, costs, technology and understanding
change. The lower the cost of each adjustment (each
transaction) the greater the probability that the system
will prove to be robust.
Management Goals, Objectives and Targets
Goals or objectives typically associated with almost
any natural resource management or environmental
problem include:
Distributive Equity – arguments about how the
cake should be cut up and distributed among
Economic Efficiency – arguments about how to
enable exchange so that the opportunities created
produce the greatest quantity of market benefits
for distribution according to rules developed
elsewhere; and
Management of externalities arguments
about how to manage the impacts of resource
use on those people not involved directly in
the transaction or the activity that causes these
Instrument Design
The Tinbergen Principle requires that there be a
separate objective for each goal, objective or target.
Thus, for “goals” or “problems” for which there are no
externalities, commitment to robustness necessitates
that there be, at least:
A wealth management instrument associated
with ensuring the equitable distribution of the
benefits associated with the opportunity;
An exchange instrument associated with
attainment of efficient processes; and
A third instrument enabling the management of
any externalities.
As a general rule, there must be at least one set
of these instruments for each significant natural
resource management problem, especially when one is
operating in an environment where the landscape is
not homogeneous. The art lies in determining which
objectives are significant enough to justify the use
of a separate instrument to manage them and then
arranging the detail so that minor problems can be
dealt with efficiently.
To make matters more complicated, both individual
irrigator and aggregate system irrigation impacts and
issues need to be managed.
68 Canadian Water Resources Journal/Revue canadienne des ressources hydriques
© 2005 Canadian Water Resources Association
In summary, for many if not most natural resource
and environmental management issues, robust
allocation and management arrangement systems
will involve the use of at least three instruments. To
manage both individual and aggregate system impacts
will require a minimum of two by three instruments
(see Table 1).
Table 1. Generalized framework for the
selection and assignment of instruments
for the management of natural resources.
Scale Policy Objective
Individual Entitlement Access
Use licences
Instrument Assignment
The next principle relevant to the design of robust
instruments is Mundell’s principle of effective market
classification or assignment. Mundell’s principle
suggests that as well as paying attention
to instrument separation, one must also
assign (pair) instruments to issues for
which they have the greatest leverage.
For insights as to the most effective
instrument assignment, Young and
McColl (2002; 2003a; b; c) turn to
history and experience. The essential test
they propose is that the instrument must
have withstood the test of time and be
characterized by low transaction costs.
Casting the net widely, they identify:
the unit share structure used since
1862 to distribute entitlements
among a group of people and the
Torrens title system used to register
entitlements and legal interests in
them (Abbott, 2004) — assigned
to distributive equity;
the accounting system used by banks to track
holding of money and the transfer among people
— assigned to economic efficiency; and
periodically-reviewable conditions on individual
use licences as an effective way to manage
externalities caused by site-specific actions —
assigned to externality management.
The result is a three part structure that is quite different
from the single licensing or permit systems in use in
many countries (see Figure 1). Separate instruments
are used to achieve each policy objective. The result is
a structure that, because the attributes can be managed
independently, can be expected to remain robust.
Clues to the detail necessary to ensure that each
instrument is able to respond to changes as they occur
come from a wide variety of sources and from the rich
gallery of experiences derived from the analysis of
the reasons why previous systems had to be changed
(Young and McColl, 2002).
Application to Water Resources Management
Applied to the management of water resources,
the above framework reveals a series of policy
recommendations now being developed in Australia.
Figure 1. Generic elements of a robust entitlement, allocation and
use management framework.
Young and McColl 69
© 2005 Canadian Water Resources Association
On the recommendation of the Council of Australian
Governments (COAG) in 1994, titles to land were
to be separated from water entitlements and water
allocations were to be supplied at full cost, including
the cost of externalities (see Figure 1).
The unexpected result of implementing these 1994
reforms was the emergence of many new problems.
Essentially, the existing licensing systems were not
designed for exposure to market processes. In particular,
the extent of water entitlement over-allocation became
apparent and arrangements to deal with groundwater
and surface water interconnectivity and the effects of
water use efficiency and land use change were not in
place (Murray-Darling Basin Ministerial Council,
2002). Water traded into some regions has resulted in
environmental problems, and, in particular, significant
salinity problems have emerged. Trading has also
been accused of causing significant adverse economic
and social impacts, although there is little available
evidence to suggest that this may be the case. To
address these problems, a system redesign based on
a robust separation was clearly required (Young and
McColl, 2002).
First, drawing on the experience of the way
investors in companies define the size of their
stake in a business, the system should involve the
introduction of unit shares underpinned by registers
organized so that interests in them can be recorded
on an indefeasible register.
Second, under the above framework, entitlements
provide a share of allocations made in proportion to
the number of shares held. Casting the net for the most
cost-effective way to manage allocations, one option
is to use the accounting systems that banking systems
around the world rely on. The key characteristic of
these systems is that the cost of any single transaction
is very low. One of the reasons for this is the simple
accounting discipline that requires that for every credit
there is a corresponding debit (see Figure 2).
The third element of any separated system is
the design of instruments for the management of
externalities. Classically, licences are used to define
water entitlements and to manage the way this water is
used. By using this single instrument to do both tasks,
inefficient outcomes occur. Drawing upon the insights
offered by Mundell’s assignment principle, it can be
Figure 2. Example of a robust accounting system for the management and trade of water allocations.
Account Name: Aussie Irrigation
Statement No: 24
Date Debit Credit Balance
1/07/2001 Balance brought forward 400
1/09/2001 Periodic allocation 2000 2400
1000 shares translates to 2000 ML of water that may be consumed
12/10/2001 Transfer from XYZ Pty Ltd 500 2900
Cheque No. 1234 5678
3/11/2001 Use from 1/9/01 to 1/11/01 500 2400
(Pumped 1000 ML and deemed to have used 50%)
3/11/2001 Transfer from AB&CD Smith @ 0.9 ML per ML from South Australia 300 2700
Electronic RN 9876543
30/04/2002 Use from 2/11/01 to 30/4/02 660 2040
(Pumped 1320 ML and deemed to have used 50%)
30/05/2002 Unused water not available for carry forward to 2002/03 season 420 1620
5/09/2002 Credit for removal of forested area 10ha at 1.5 ML per ha 15 1635
5/09/2002 Debit for establishment of 50 ha of forest at 1.5 ML per ha 75 1560
70 Canadian Water Resources Journal/Revue canadienne des ressources hydriques
© 2005 Canadian Water Resources Association
seen that use licence conditions are most appropriately
assigned to externality management. The three
essential building blocks for a robust management of
water entitlements, allocations and use is summarized
in Figure 3.
providing for a secure review closure mechanism
that requires advance warning of the nature of a
proposed change and provides for the use of an
independent arbiter if the review process is not
finalized within, say, five years before the current
arrangements expire.
National Water Initiative
In response, and as a result of
much of the research reported in
this paper and other deliberations,
Australia’s leaders agreed to pursue
a National Water Initiative (NWI)
that will seek to “implement a
robust framework for water access
entitlements” (COAG, 2003).
Subsequently (COAG,
2004), there has been agreement
to a National Water Initiative
(NWI) that contains actions
to be implemented with “the
objective of achieving a nationally
compatible, market, regulatory
and planning-based system of managing surface water
and groundwater resources for rural and urban use,
that optimizes economic, social and environmental
outcomes, and is able to adapt to future changes in the
supply and demand for water”.
This new framework defines water access
entitlements as providing perpetual access to a unit
share of a defined water resource, and specifies and
assigns risk between water users and governments.
Robust registry and accounting systems that take full
account of the water cycle and of hydrological processes
are to be established. These will take into account
interactions between surface water and groundwater
systems, and the effects of significant land-use changes,
such as forestry, that can decrease the quantity of
water otherwise available to water users. In addition,
regulatory approvals enabling water use at a particular
site for a particular purpose will be specified separately
to the water access entitlement. A key feature of such
systems are mechanisms in water allocation plans,
trading protocols and catchment plans that encourage
periodic review of deeming rates, exchange rates and
Figure 3. A robust structure for the management of water entitlements,
allocations and water use.
Having separated licence components, a process is
needed to enable the periodic revision of these conditions
and other planning and regulatory arrangements. The
main challenge is to find a fair and efficient way to
conduct and complete reviews without discouraging
investment. There is still considerable debate about the
most effective way to conduct these reviews and when
they should be conducted. The emerging view is that
it is most efficient to allow water users time to plan for
and adjust to a new set of conditions. When advance
warning is given of a change, existing equipment and
infrastructure can be replaced in an orderly manner.
Announcing changes to be implemented say five to
seven years later provides plenty of time for adjusting
to the new regime.
It is also becoming apparent that the costs of
periodic reviews and the uncertainty associated with
them can be reduced by:
conducting reviews on a regional basis and
rotating them between regions so that the review
process is predictable and users can see the nature
of changes that are being phased in elsewhere;
Young and McColl 71
© 2005 Canadian Water Resources Association
assessments of the impacts of land use changes (see
Figure 3).
There is also interest in setting up the system in
a manner that will enable the introduction of separate
entitlement and allocation systems to allow people to
trade in peak demand period delivery capacity and to
also enable salinity entitlement and allocation trading.
If all these foreshadowed policy changes occur then a
framework similar to that set out in Figure 4 could
perpetual shares and the guarantee of an entitlement
register. Consideration of these issues has led Young
and McColl (2003a) to recommend that reforms begin
with the introduction of robust bank like accounting
arrangements for allocations and arrangements to
manage hydrological interactions well before unit share
access entitlements are introduced and entitlement
registers guaranteed. In particular, land-use impacts on
water yield need to be managed, ground and surface
water interactions need to be accounted for, and the
impact of increases in
water use efficiency on the
quantity of water available
to others needs to be built
into the system.
Concluding Comments
Australian and other
experience reveals the
likely benefits of building a
robust entitlement system
from the outset. Moreover,
the administrative costs
of building a robust
entitlement, allocation and
use management system are
not significantly more than
the costs of starting with a
less sophisticated system.
The main costs of
establishing any system are determined by the number
of water users not how many pieces of paper are
issued and the detail associated with each entry. In the
longer run, if a robust system is put in place, further
costly reform and adjustment will not be necessary. If
a government implements a separated system, then
many such problems can be avoided and the long-
term costs to industry and the environment avoided.
The approach is also particularly relevant for those
interested in setting up emission trading systems, forest
harvesting systems, fish harvesting systems, etc.
In any environment where there is uncertainty and
these uncertainties cannot be avoided, entitlements
should be defined as shares and periodic allocations
made in proportion to the number of shares held. If
the transaction costs associated with allocation trading
are low, then almost all efficiency benefits can be
Figure 4. A separated system designed to enable independent management of
salinity and delivery capacity in peak demand periods.
The final issue for this paper to consider is the question
of the sequencing of any reforms. The transition from
a standard water allocation and use control system to
a robust one can involve many complex processes and
it can be tempting to implement the easiest ones first.
This, however, may not be the wisest choice of action,
especially if market-based processes are to be used and
if the available resource is over-allocated. In such cases,
implementation in the wrong order is likely to increase
the costs of adjustment.
As a general rule, those reforms that add the
greatest value should be implemented last and only
after over-allocation issues have been resolved. Reforms
likely to add value include definition of entitlements as
72 Canadian Water Resources Journal/Revue canadienne des ressources hydriques
© 2005 Canadian Water Resources Association
secured through the use of robust accounting practices.
Conceptually, most of the remaining efficiency gains can
be realized through the introduction of arrangements
for the efficient management of externalities.
We would like to acknowledge the constructive
comments made by Steve Hatfield Dodds and an
anonymous reviewer. The support of the Canadian Policy
Research Institute and its invitation to present to their
Policy Research Experts’ Symposium on “Economic
Instruments for Water Demand Management in an
Integrated Water Resources Framework” on June 14-
15, 2004 in Ottawa are gratefully acknowledged.
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... A robustly constructed dam will survive an earthquake. A robustly designed water-sharing system should enable water users to cope with the worst of droughts and include arrangements to enable the emergence of an adverse climate shift (Young and McColl, 2005). There are many tests for the robustness of a water allocation system. ...
... Many fisheries, for example, are managed by issuing shares that entitle each shareholder to their pro-rata share of an annual catch entitlement. 5 Similarly, in the corporate world and especially when there is considerable investment risk, dividends usually are distributed in proportion to the number of shares held (Young and McColl, 2005). When water is abundant, discussions about the need for the development of robust water-sharing arrangements can be deferred. ...
... Once a formal sharing system has been put in place, value can be increased by ensuring the integrity of share registers and allowing these shares to be mortgaged in the same way that it is possible to mortgage land (Young and McColl, 2005). Consistent with the concepts found in many qanat systems, one of the simplest reforms that can be introduced in any region is to run a process that converts all paper-based water licences into a centralised electronic register of guaranteed integrity. ...
A framework for the review of existing water management systems and their transformation into robust water sharing systems is offered. The framework focuses on the need to develop efficient and equitable ways to manage water scarcity and plan to deal with the tensions scarcity imposes on any community. The framework identifies a way to bring together traditional community-managed systems with those typically used to allocate water to large water users and more commonly found in developed countries. So that use can be kept within sustainable limits while optimizing use, the framework includes mechanisms that enable the reallocation of water as demand and supply conditions change. Non-consumptive uses are recognized and environmental objectives can be delivered efficiently. Compliance with well-established accounting and hydro-logical concepts. Ways to increase the value of existing entitlements, encourage innovation and protect investments are included as options. It is recognized that the governance and legal arrangements necessary to underpin successful implantation are context specific.
... Karnataka should use that money to invest in its own water infrastructure system improvement. This divisional method is based on the Coase Theorem [36,37], which is an economic and legal theorem that asserts that if a conflict arises over property rights, parties will tend to settle on the efficient set of inputs and outputs, given that the property can be divided, defined, and the property rights are defendable. This improvement will lead to more efficient use of water and hence reduce the water requirements of the state. ...
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For hundreds of years, conflicts in water sharing have existed all around the globe. Cauvery River, in the southern part of India, has been in the midst of such conflict for the last 130 years. Historically, the conflict has been about the right to use water and the states/provinces in conflict have used the water from the river for agricultural purposes. Due to industrialization in the late 1980s and increasing population, water availability in the region has become stressed. Climate change has exacerbated the region’s water availability issues. Faltering rainfall has caused unrest in the region, and the traditional methods of water sharing are dwindling under political pressure. Without a climate change strategy, the governments of these states will never be able to solve this complex issue at hand. The Graph Model for Conflict Resolution (GMCR) is applied to understand the nuances of this conflict. It models the preferences of the decision-makers (the states of Tamil Nadu and Karnataka) and the common option (goal) they can reach to potentially solve the conflict. Fuzzy preferences along with option prioritization is also applied to this conflict in order to account for the uncertainties in the decision-makers’ preferences. The purpose of this paper is to nudge decision-makers in a productive direction to overcome the long-impending political standoff, while introducing a new methodology of looking into this old conflict.
... With the granting of water property rights in south eastern Australia in 1994 (Young and McColl, 2005) the annual assigning of water allocations presents a resource asset that can enable an irrigator to manage their operations whether for production or water trading. An overall analysis of the sample data indicates that where an effective water market is operational and that market has water to trade, crops and varieties that are productive and well managed are resilient to reductions in allocations. ...
The Interactive Land use Strategic Assessment (ILSA) tool allows irrigators to examine and compare the likely effects of a range uncertain future climates on their individual enterprise along multiple time frames. The scientific basis of the tool is predicated on the influence of the prevailing climate conditions on expected levels of water allocations for irrigation activities under multiple climate scenarios. The model reports both annual returns and ten year average annual expected returns, given probability weighted allocations for a selected decade and climate scenario. Irrigators are able to adjust default farm operational parameters to suit their particular circumstances and examine the expected returns across multiple possible future water availability and market price years. A case study in the Loxton irrigation district of Southern Australia demonstrates the models capability examining the effects climate change, climatic variability, and water trade have on irrigation operations in a manner that is understandable to irrigators.
... The final question that has been explored in this thesis is: can the first-passage time distribution be used as an operating criteria and if so how would this impact the operating policies found using this criteria? The motivation for this question comes from Young and McColl (2005) who advocate that water resources be managed with the objective of maintaining the long-term viability of the storage system first and then proportioning the releases based on the economic values placed on the water after basic human needs had been met. The objective criteria is then to maximisie the number of steps until any undesirable state is reached or to minimise the number of steps until a target state is reached. ...
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n general, a physical process is modelled in terms of how its state evolves over time. The main challenge of modelling is to describe this evolution without unnecessary computation or making unrealistic simplifying assumptions. Markov chains have found widespread applications in many fields of analytic study from engineering to biology to linguistics. One of their most notable applications in hydrological applications has been modelling the storage of reservoirs, as described in Moran's influential monograph (Moran, 1955). One of the fundamental properties of Markov chains is that the future evolution depends only on the present state, and not on any of the previous states. This property is simply stated as the “memory-less" property or the Markov property. In a Markov chain model the states representing the physical process are discrete, but time can be modelled as either discrete or continuous. In this thesis, time is modelled in discrete units because this is consistent with the well-established theory of Markov decision processes. The discrete states need not be a practical limitation because of continuous state variables, as in this case storage in a reservoir, can be discretised as a reasonable approximation. There have been many advances in Markov chain modelling techniques in other fields, most notably in telecommunications with the development of matrix analytic methods. Matrix analytic methods exploit the structure of certain types of Markov chains in order to more efficiently calculate properties of the models. This thesis examines how these methods can be applied to hydrological applications with the goal of providing a framework for which more precise modelling can be achieved without extending computational times. There are many unique challenges due to the seasonal nature of hydrology as well as the tendency for persistence of hydrological conditions. This thesis explores some of these problems in four papers. The first paper looks at the issues surrounding hydrological persistence and its incorporation into Markov decision processes using the Southern Oscillation Index as proxy. The second paper looks at modelling using matrix analytic methods of spate flows in the Cooper Creek, which is an ephemeral river located in the South Australia. The third paper looks at a way of modelling hydrological persistence with underlying hidden states in contrast to assumed dependence on the Southern Oscillation Index. The final paper looks at multi-objective optimisation using first-passage time distributions with an application to a two reservoir system in South East England. The Pareto front of Pareto optimal policies is shown.
... Erfani et al. (2013) presented an efficient variant used by Erfani et al. (2014) to model a surface water spot market. This paper extends the generic water market simulation model proposed by Erfani et al. (2014) to assess possible outcomes of water trading under a share-based licensing system where allocations (water rights) are updated according to current flow conditions and dynamically updated environmental flows (Environment Agency, 2013; Young and McColl, 2005). The new model is applied to a case-study basin in eastern England. ...
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To enable economically efficient future adaptation to water scarcity some countries are revising water management institutions such as water rights or licensing systems to more effectively protect ecosystems and their services. However, allocating more flow to the environment can mean less abstraction for economic production, or the inability to accommodate new entrants (diverters). Modern licensing arrangements should simultaneously enhance environmental flows and protect water abstractors who depend on water. Making new licensing regimes compatible with tradable water rights is an important component of water allocation reform. Regulated water markets can help decrease the societal cost of water scarcity whilst enforcing environmental and/or social protections. In this article we simulate water markets under a regime of fixed volumetric water abstraction licenses with fixed minimum flows or under a scalable water license regime (using water "shares") with dynamic environmental minimum flows. Shares allow adapting allocations to available water and dynamic environmental minimum flows vary as a function of ecological requirements. We investigate how a short-term spot market manifests within each licensing regime. We use a river-basin-scale hydroeconomic agent model that represents individual abstractors and can simulate a spot market under both licensing regimes. We apply this model to the Great Ouse River basin in eastern England with public water supply, agricultural, energy and industrial water-using agents. Results show the proposed shares with dynamic environmental flow licensing system protects river flows more effectively than the current static minimum flow requirements during a dry historical year, but that the total opportunity cost to water abstractors of the environmental gains is a 10–15% loss in economic benefits.
Integrated water management helps adaption to variable rainfall by using more groundwater during dry years and more surface water during wet years. Integrated water management techniques including water banking, and aquifer storage and recovery are extensively practiced in other dry regions such as the western USA and Spain. Yet these techniques are not used in the Murray-Darling Basin. This thesis explores factors which have affected integrated water management in the Murray-Darling Basin, and in the states of Colorado and Idaho in the USA. The most important contribution of this research is that it sets out the advantages of integrated cyclical water management, and points to the opportunities for aquifer storage and recovery and water banking. Integrated surface water and groundwater storage is the missing link in Australia's otherwise comprehensive water reform. This thesis uses a narrative synthesis approach for analysing factors that have affected integrated water management. This approach relies on qualitative analysis of findings from existing studies and documentary evidence, supplemented and cross checked by interviews. It is proposed that integrated water management may be considered as a process taking place in a complex social and ecological system. Fourteen key variables that affect integrated water management were selected drawing on Ostrom's framework for the analysis of social ecological systems, relevant scientific literature and discussions with water managers and experts. The relationship between these variables and integrated water management were explored in two comparative case studies. The first case study enabled a broad assessment of factors that have affected integrated water management at a jurisdictional scale in the Murray-Darling Basin. The second case study enabled a more detailed exploration of the impact of water entitlements, operational rules and management organisation(s) on integrated water management in tributary catchments in New South Wales, Colorado and Idaho. The development of integrated surface water and groundwater management, especially in the Murray-Darling Basin has been constrained by the surface water centric development of water resources and institutions, gaps in knowledge about surface water and groundwater connectivity, the lack of a comprehensive, flexible and balanced system of water entitlements and rules, and implementation difficulties. Further development of integrated water management requires better knowledge and improved management capacity. Further research and development needs to be devoted to the integrated management of water stocks and storages - a missing link in Australian water reform. Further research is required to improve understanding about surface water - groundwater connectivity and to develop strategies for managing long-term impacts of groundwater use. Ongoing development of flexible systems of water entitlements and rules is needed to enable cyclical surface water and groundwater management. Finally the capacity for the implementation of integrated water management at local and regional scales needs to be improved together with collaboration between higher-level governments and local organisations and stakeholders. -- provided by Candidate.
This chapter describes the roles of market participants, starting with the market manager. The chapter assumes that the prerequisites, or extra-market considerations, for market implementation are already in place. It discusses the participants’ bids and the bidding process, the market manager’s transaction and allocation database , and the market-clearing model. A section describes the steps in routine operations, and gives additional rules for operations. Later sections describe how hydrological recharge affects the market design, and give an example from Australia of salinity discharge. The final sections discuss the problems that would arise if the private sector were to operate the market, various market structures, and likely questions that implementers would face.
The changes in land-use practice and investment that flow from the modification of an abstraction regime to allow water trading can bring significant economic gains. If these gains from trade are to be unequivocally beneficial to all members of society and to the environment simultaneous reform of the abstraction regime may be necessary. In particular, it is critical to understand how trading will affect return flows, the capture of overland flows and abstraction from connected water resources. Failure to attend to the sequence of reforms needed to establish a robust abstraction regime capable of sustaining the pressures from trade can be very expensive. In retrospect, it can be argued that Australia got its water reform sequence wrong. As a result and unnecessarily, she had to spend billions of dollars restoring balance to the Murray Darling Basin. The cost to society of restoring balance to abstraction arrangements appears to be greater than the benefits that flowed from the rapid development of water trading. Those who recommend a transformational change to a policy regime have a responsibility to consider the system-wide consequences of adopting the change they recommend.
Environmental flows in unregulated rivers require a different management approach to regulated systems, where reservoirs allow more adaptive management of flows and water markets are well established. Governments in Australia have been investigating tender approaches to buy back water in unregulated systems. A. number of organisations in the Columbia Basin in northwest America have been actively purchasing water for the environment in unregulated systems. This paper outlines some of the key lessons learnt about purchasing water for the environment in the Columbia Basin and discusses their possible application in the Australian context.
Securing instream flows for aquatic ecosystems is critical for sustainable water management and the promotion of human and environmental health. Using a case study from the semiarid region of southern Alberta (Canada) this paper considers how the determination of instream flow standards requires judgments with respect to: (1) The relationship between instream flow indicators and assessments of overall environmental health; (2) The indicators used to determine adequate instream flows, and; (3) The assumptions underlying efforts to model instream flows given data constraints. It argues that judgments in each of these areas have an inherently ethical component because instream flows have direct effects on the water(s) available to meet obligations to humans and non-humans. The conclusion expands from the case study to generic issues regarding instream flows, the growing water ethics literature and prospects for linking science to policy.
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Australia's climate is characterized by highly variable rainfall. As a consequence, many aspects of riverine ecosystems need both very wet and very dry periods to function effectively. This contrasts with water demands from industrial and agricultural sectors, which place a premium on access to a constant supply of water. This combination of demands suggests there could be considerable value in using water banking and trading mechanisms to reduce the social cost of achieving environmental objectives. In this paper, the concept of counter-cyclical trading is outlined and influences on its potential for reducing the cost of achieving environmental flow objectives evaluated. The potential value of using mechanisms to enable counter-cyclical trading across low and high flow years is evaluated using a simple model. The model combines aspects of the natural, engineered and economic systems in place. Broadly these are: the ecosystem requirements of natural systems (described in terms of the frequency of flow objectives); the nature of the current flow regime (inherent in a combination of climatic variation and the regulation of water flows through the system); and the nature of the water market (captured in the shape of the short run demand curve). The potential value of counter-cyclical trading is evaluated with specific reference to environmental flow banking and trading systems currently operating in the River Murray System. Risks associated with trading are briefly discussed, and some links are made in the context of the state of water market reform in the Murray-Darling Basin.
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This report is about the search for an economically efficient and equitable system of defining, allocating, and managing use of natural resources that proves to be robust. Robust in the sense that the fundamental principles and foundations upon which it is based remains unchanged over time. We focus on the notion of “interests” in natural resources, and obligations associated with use. We search for a generic robust approach to the definition of interests, rights and use obligations that sits comfortably within an economically efficient trading system. Pricing and charging issues and the question of how to convert from existing systems to the proposed one are left for subsequent reports.
I. Introduction, 227. — II. The static system, 229. — III. The dynamic systems, 233. — IV. The crucial role of capital movements, 237. — V. Foreign exchange reserves, 242. — VI. Speculation, 246. — VII. Concluding remarks, 249. — Appendix, 251.
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Cette étude traite des problèmes que pose la réalisation de la stabilité intérieure et de l'équilibre de la balance des paiements dans un pays qui estime inopportun de modifier le taux de change ou d'imposer des systèmes de contrôle des échanges. On suppose que la politique monétaire et la politique fiscale peuvent être utilisées indépendamment pour atteindre ces deux objectifs si les flux de capitaux sont sensibles à l'écart entre les taux d'intérêts, mais on aboutit à la conclusion que la manière dont les politiques sont assorties aux objectifs revêt une extrême importance. Plus précisément, il est prouvé que la politique monétaire doit être fondée sur les objectifs extérieurs, et la politique fiscale, sur les objectifs intérieurs, et que toute inobservance de cette règle peut aggraver le déséquilibre au-delà de ce qu'il était avant l'introduction de changements de politique. Cette théorie, lorsque les mesures de stabilisation ne comprennent que la politique monétaire et la politique fiscale, a pour conséquences pratiques qu'un pays excédentaire subissant une pression inflationniste doit alléger les conditions monétaires et augmenter les impôts (ou réduire les dépenses du Gouvernement), alors qu'un pays déficitaire souffrant du chomâge doit relever ses taux d'intérêt et abaisser les impôts (ou augmenter les dépenses du Gouvernement). L'explication de ce résultat peut être liée à le Principe de la Classification Effective des Marchés: les politiques doivent aller de pair avec les objectifs sur lesquels elles ont la plus forte influence relative. Si ce principe n'est pas appliqué, il se manifestera une tendance vers un mouvement indirect, voire un mouvement instable des variables. L'utilisation de la politique fiscale à des fins extérieures et de la politique monétaire en vue d'assurer la stabilité intérieure constitue une infraction à ce principe car l'effet du taux d'intérêt sur l'équilibre intérieur, par rapport à son effet sur la balance des paiements, est moindre que l'influence de la politique fiscale sur l'équilibre intérieur par rapport à son influence sur la balance des paiements. Pour des raisons analogues, la combinaison inverse de ces politiques préconisée dans les conditions restrictives indiquées ici, est compatible avec le principe. A un niveau encore plus général, on trouve le principe de Tinbergen, d'après lequel, pour atteindre un nombre donné d'objectifs, il faut au moins un nombre égal d'instruments. Le principe de Tinbergen s'attache à l'existence et à la determination d'une solution au système. Il ne prétend pas qu'une série donnée de mesures aboutira en fait à cette solution. Pour soutenir ceci, il y a lieu d'examiner de façon approfondie les caractères stabilisateurs du système dynamique proposé. Dans cette perspective, le Principe de la Classification Effective des Marchés accompagne nécessairement le principe de Tinbergen. /// En este estudio se trata de los problemas inherentes a la consecución de la estabilidad interna y del equilibrio de la balanza de pagos de un país que no considera oportuno modificar su tipo de cambio, o imponer controles al comercio. Se da por sentado que la política monetaria y la fiscal pueden usarse como instrumentos autónomos para lograr los dos objectivos, siempre que los movimientos de capital respondan a los márgenes diferenciales de las tasas de interés, pero se señala que es asunto de extrema importancia aparear la política con los objetivos. Se demuestra especialmente, que la política monetaria debe basarse en objetivos externos y, la fiscal, en objetivos internos y, que el descuido en seguir esta recomendación, puede empeorar aun más la situación de inestabilidad que existía antes de implantar cambios en la política. La conclusión práctica de la teoría es que cuando las medidas que se toman para lograr la estabilización se limitan a la política monetaria y a la fiscal, aquellos países con superávit, que atraviesan por un periodo de presión inflacionista, deben aflojar las condiciones monetarias y subir los impuestos (o reducir los gastos fiscales), mientras que un país deficitario, con problemas de desempleo, debe aumentar las tasas de interés y disminuir los impuestos (o incrementar los gastos fiscales). La explicación de este resultado puede relacionarse con el Principio de Clasificación Efectiva de Mercados: las políticas que se adopten deberán asimilarse a aquellos objetivos sobre los que ejercen una influencia relativamente mayor. Si no se siguiera este principio, existiría la tendencia hacia un movimiento indirecto y aun inestable de las variables. El empleo de la política fiscal para fines externos y, de la política monetaria, para la estabilidad interna, infringe este principio, porque el efecto de las tasas de interés en el equilibrio interno, comparado con el que ejercen sobre la balanza de pagos, es menor que el efecto de la política fiscal sobre el equilibrio interno, comparado con el que ejerce sobre la balanza de pagos. Por razones análogas, la combinación alternativa de estas políticas que se propone en las condiciones restrictivas aquí señaladas, armoniza con dicho principio. En un plano aún más amplio está el principio de Tinbergen, que para lograr un número dado de objetivos debe existir, al menos, un número igual de instrumentos. El principio de Tinbergen se relaciona con la existencia y ubicación de una solución al sistema; no mantiene que un conjunto dado de medidas de política habrá de conducir, de hecho, a dicha solución. Para hacer esta aseveración, es necesario investigar los atributos de estabilidad del sistema dinámico. Es por esta razón que el Principio de Clasificación Efectiva de Mercados debe necesariamente acompañar al principio de Tinbergen.
The attention being given to water resources by the Council of Australian Governments (COAG) and the Murray-Darling Basin Commission (MDBC) suggests that much Australian water use is inefficient. Australian may be the driest inhabited continent in the world, but from an economic perspective, the nation's water resources are abundant. In a thorough assessment of the role of water in the economy, there was little to suggest that water is a constraint upon opportunities for economic growth. Mismanagement not shortage is the issue. The focus of this article is on institutional arrangements for the efficient allocation and management of water. It offers a template for the development of a consistent water allocation system across Australia and a means to implement it. The search is for arrangements that are dynamically efficient, have low administrative costs, and are robust in an institutional sense.
Council of Australian Governments National Water Initiative
Council of Australian Governments. 2004. " National Water Initiative. " Communiqué, June 2004.
Encyclopedia of Real Estate Terms
  • D Abbott
Abbott, D. 2004. Encyclopedia of Real Estate Terms. Delta Alpha, London.