In an increasingly globalized and interconnected world, where social and environmental change occur ever more rapidly, careful futures-oriented thinking becomes crucial for effective decision making. Foresight activities, including scenario development, quantitative modeling, and scenario-guided design of policies and programs, play a key role in exploring options to address socioeconomic and environmental challenges across many sectors and decision-making levels. We take stock of recent methodological developments in scenario and foresight exercises, seek to provide greater clarity on the many diverse approaches employed, and examine their use by decision makers in different fields and at different geographic, administrative, and temporal scales. Experience shows the importance of clearly formulated questions, structured dialog, carefully designed scenarios, sophisticated biophysical and socioeconomic analysis, and iteration as needed to more effectively link the growing scenarios and foresight community with today's decision makers and to better address the social, economic, and environmental challenges of tomorrow.
Water reallocations have costs to the users of water, or abatement costs (e.g., charges designed to marginally increase environmental water flows), but also nontrivial institutional transaction costs (e.g., costs incurred to develop institutions and organizations to support and enforce environmental reallocations). However, institutional transaction costs studies are very limited and those available do not integrate abatement costs measurements, which constrains our ability to assess the performance of water reallocation. This paper presents the first integrated analysis of abatement and transaction costs of water reallocation. The analysis is illustrated with an application to the Douro River Basin, an agricultural basin in central Spain that has recently finished its second planning cycle (2015–2021). First, we use a hydroeconomic model that accounts for the two-way feedback responses between human and water systems to estimate the abatement costs of water reallocations, as well as their effectiveness in achieving the good ecological status of water bodies. Second, we measure and monetize realized institutional transaction costs of river basin planning over time and build on this cutting-edge longitudinal dataset to assess future directions and magnitude of transaction costs. We use this information to assess and rank the performance (through cost-effectiveness) of the water reallocations considered in the latest Douro River Basin Plan under alternative climate change scenarios. We find that under the hypothesis of stationary transaction costs, these can represent between 5.7% and 8.3% of the total reallocation costs (abatement plus transaction costs). This non-trivial magnitude highlights the need to account for both abatement and transaction costs when assessing the performance of water reallocations, and environmental policy overall.
Abstract Effective management of water resources is a critical policy issue globally. Using a framework developed by Turton, and a common set of characteristics describing key stages of water demand, we examine the effectiveness of isolated technical (e.g., irrigation upgrades) and allocative (e.g., buyback) efficiency for reducing water demand to sustainable levels. We base our analysis on Australia's water reform context which offers an advanced example of applying these levers to achieve allocative and technical efficiency. The study is motivated by appreciation of the benefits from increased policy flexibility and adaptability in response to the following: potential transformations toward inflexible production systems; uncertainty associated with impacts of climate change on future water reliability; and the need for increased possible future equity between uses/users (productive/consumptive, environmental, cultural). Our results highlight that a balance between technical and allocative efficiency mechanisms is necessary, as neither is sufficient in isolation, when seeking to reduce total water use. This approach also enables a clearer representation of uncertainty in future policy choices in many global settings with respect to water demand reduction.
Abstract Transaction costs are fundamental to implementing, evaluating, and monitoring public policy/programs for social, economic, and/or environmental welfare. Empirical accounting for transaction costs helps identify and evaluate adaptive public policy or program arrangements that improve future institutional choices under uncertainty. However, examples of empirical transaction cost studies are few, due largely to persistent measurement challenges and limits to transaction cost comprehension. A lack of studies limits both insights into the importance of transaction costs in institutional design and validation of theories surrounding cost trajectories over time under different institutional arrangements. In this paper we apply time series analysis to a unique database of public salinity management program transaction costs in Australia's Murray‐Darling Basin. Our study provides insights into the role of transaction costs in institutional efficiency and on empirical approaches to considering relationships between observed transaction cost trajectories and the efficiency of associated institutions. Our results indicate that the Murray‐Darling Basin salinity management program succeeded in generating persistent declines in transaction costs and river salinity levels over time. We suggest some possible reasons for this that are associated with institutional design and reflect on what these findings may mean for other jurisdictions.
Where we may be aware that a problem exists, but have only an incomplete description of the drivers and/or possible management solutions, we will be unaware/uncertain about future returns from, and risks to, private and public investments in capital (i.e. social, natural, economic, cultural and political). This paper explores the unawareness/uncertainty problem by coupling Arrow's states of nature approach for dealing with uncertainty with Rothschild and Stiglitz's exploration of inputs and increasing risk. This results in a modified Just-Pope production function equation isolating inputs to i) protect base capital (natural, social or private) and/or ii) generate an output. By exploring water input supply unawareness via alternative states of nature we may identify tipping points where current technology fails, resulting in irreversible losses of private and public capital tied to water inputs. We conclude by discussing the value of quantifying minimum-input requirements and identifying critical tipping-point outcomes in water systems, increased benefits/risks from transformed landscapes chasing higher economic returns, and the need for adaptive public arrangements in response. These insights may help us to understand future risk to natural capital from rising incentives to steal increasingly constrained resources that may trigger revised risk-sharing arrangements, and some limits to analyses relying on perfect foresight requirements by decision-makers.
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