ESSAYS IN NATURAL RESOURCES MODELING

This dissertation explores the use and development of computable models for environmental policy assessment. It is aimed at improving methodologies, extending the range of applications and elaborating on the theoretical underpinnings of the models. Chapters 1, 2, 3 and 4 all deal with the economics of water resources. Most of them make use of computable general equilibrium models to assess the effects of future water availability on the economy of the Mediterranean. Chapter 2 addresses methodological issues arising in the estimation of “virtual water” flows, whereas Chapter 5 explores some aspects of sustainable economic growth in a theoretical setting. In particular, Chapter 1 builds and illustrates four scenarios, assessing future water availability in the Mediterranean and its macroeconomic implications. The scenarios are constructed by considering forecasts of economic and demographic growth, as well as climate change and environmental policies. It is found that some northern Mediterranean countries will face insuffcient water supply for agricultural sectors, because of climate change and reduced precipitation, whereas other southern Mediterranean countries will face similar problems mainly caused, however, by strong economic and demographic development. Chapter 2 discusses some methodological issues associated with the estimation of virtual water flows, which refer to the volume of water used in the production of a commodity or service, and virtually exchanged through conventional trade. In this paper, we argue that conventional methods for the computation of virtual water flows may bring about biased estimates, thereby limiting the usefulness of the virtual water concept as a tool for informing water policy. We propose a new approach, accounting for both direct and indirect water consumption, that is the one associated with the use of intermediate factors. Furthermore, we distinguish between green (soil moisture) and blue (surface) water resources, which is important because green and blue water have different opportunity-costs. Chapter 3 analyzes current and future virtual water trade patterns in the Mediterranean. The future scenario is obtained by means of a computable general equilibrium model, where the effects of reduced agricultural productivity, induced by lower water availability, are simulated. The analysis highlights a future reduction of intra-Mediterranean virtual water trade and an increase of virtual imports from central and northern Europe, as well as from the rest of the world. Chapter 4 considers the consequences, in terms of water demand and economic performance, of climate change-induced variations in tourism flows, for a number of southern European economies. It is found that additional tourists from abroad would increase income and welfare in a hosting country, but they would also induce a change in the productive structure, with a decline in agriculture and manufacturing, partially compensated by an expansion of service industries. The reduction in agricultural production would entail a lower demand for water, possibly counteracting the additional request coming from the tourism sector. Chapter 5 follows a rather different approach, in examining the implications of alternative assumptions on discounting in a theoretical model of economic growth, in which one natural resource (which could possibly be interpreted as water quality level) affects the inter-temporal utility of a representative consumer. The chapter builds upon Smulders (2007), who analyses a model of economic growth with renewable resource dynamics, to study how society's discount rate and the inter- temporal optimization process affect the long-run stock of an environmental resource.