The economics of environmental water management

Submission note: A thesis submitted in total fulfilment of the requirements for the degree of Doctor of Philosophy to the Department of Economics and Finance, La Trobe Business School, La Trobe University, Bundoora.

In this thesis, I investigate the economics of environmental water management by considering two related approaches to increasing the efficiency of environmental water management. The first approach is to identify specific strategies that improve environmental water management. For example, what volume of water should be released for the Barmah-Millewa forests this month? Environmental water management problems are typically characterised by numerous variables, unusual functions, dynamics, irreversibility, interactions and uncertainty. I develop a model that demonstrates that economic optimisation can take these complexities into account and provide evidence on a number of practical management issues. The second approach involves identifying institutions (ways of managing environmental water) that lead to better environmental water management. For example, should environmental water management be a local or federal responsibility? I develop a game theoretic model to examine the relative efficiency of decentralised and centralised environmental water management. I show that in many cases there are no differences, and that some differences that arise in practice are due to other characteristics that typically accompany decentralised and centralised systems (such as who bears the cost of environmental water). In general, the relative efficiency of decentralised and centralised environmental water management is theoretically ambiguous. I use a numerical version of the model to highlight the influence of various physical and institutional factors. I also examine the extent to which local agents are able to coordinate within a decentralised system, which is a key determinant of relative efficiency.