Capacity Choice of Dams Under Rivalry Use and Externalities

TI Discussion Paper 2014-143/II

26 Pages Posted: 31 Oct 2014

See all articles by Harold Houba

Harold Houba

VU University Amsterdam, Department of Econometrics; VU University Amsterdam, Tinbergen Institute

Kim Hang Pham Do

Massey University

Xueqin Zhu

Vrije Universiteit Amsterdam, School of Business and Economics

Date Written: October 30, 2014

Abstract

This paper studies the relation between optimal dam capacity and water management under rivalry uses and externalities. We extend the hydropower generation model, based on Haddad (2011), by including the competing use of water resource, non-linear building cost of dam capacity and externalities in a welfare optimization model. We obtain the optimal dam capacity for multi-functional dams such as providing infrastructure for industrial and households water use, conjunctive use of hydropower generation and irrigation; storing water in the wet season for use in the dry season, and mitigating flooding damages. The optimal solution shows that optimal dam capacity is characterized by the marginal benefits of hydropower generation, the marginal costs of flooding damages, and the constraining factors. Moreover, the optimal water management can be achieved by using derived seasonal prices in a decentralized manner.

Keywords: OR in environment and climate change, river-basin management, dam capacity, welfare optimization, externalities

JEL Classification: C71, C72, D62

Suggested Citation

Houba, Harold E. D. and Pham Do, Kim Hang and Zhu, Xueqin, Capacity Choice of Dams Under Rivalry Use and Externalities (October 30, 2014). TI Discussion Paper 2014-143/II. Available at SSRN: https://ssrn.com/abstract=2516751 or http://dx.doi.org/10.2139/ssrn.2516751

Harold E. D. Houba (Contact Author)

VU University Amsterdam, Department of Econometrics ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands

HOME PAGE: http://personal.vu.nl/h.e.d.houba/

VU University Amsterdam, Tinbergen Institute ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands

HOME PAGE: http://personal.vu.nl/h.e.d.houba/

Kim Hang Pham Do

Massey University ( email )

College of Business
School of Economics and Finance
Palmerston North, Manawatu PN 342
New Zealand
+64 6 3505799, ext. 84056 (Phone)
+64 6 3505660 (Fax)

HOME PAGE: http://www.massey.ac.nz/massey/expertise/profile.cfm?stref=705830

Xueqin Zhu

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

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