For group decision about shared goods, the nature of the shared good and how its cost is to be sh... more For group decision about shared goods, the nature of the shared good and how its cost is to be shared among group members must be determined. Complexity arises from heterogeneity in preferences and endowments and nonlinear cost. To facilitate group decision, this paper proposes special type of group decision support system, a cost share adjustment process (CSAP), in which cost shares are adjusted iteratively via algorithmic rules until agreement is reached, ideally producing a socially optimal, cost feasible, and fair outcome. Design elements for CSAPs include message space, cost allocation and adjustment rules, controllers, and incentive rules, with many possibilities for a cost share adjustment process. In contrast to public good literature, our designs apply for situations of nonlinear cost,with economies of scale and fixed costs. Because of impossibility theorems, a design approach is developed: simulation and economic experiment are employed to compare alternative designs. As simulation and experiment both indicate, complicated rules for incentive purposes may impede locating group agreement. Instead of complicated economic incentive rules, economic experiments show that unanimity Approval Voting can mitigate the effects of strategic behavior.
Water pricing by water utilities and public water management agencies is becoming increasingly co... more Water pricing by water utilities and public water management agencies is becoming increasingly contentious as water scarcity increases. Increasing Block Rate pricing has been developed to address needs to conserve water. The use of IBR is increasing among utilities. For example, from a survey of 119 utilities in the Southwest Florida Water Management District: 11.8% used IBR in 1991 and 29.4% used IBR in 1997; the number of utilities with decreasing block and uniform rates decreased over this period.. Because there is no set prescription for setting the blocks, rate setting with IBR is fairly ad hoc (in contrast to average cost pricing). At the same time, many utilities are suffering revenue insufficiency as water users respond to both price and educational efforts by reducing use. This paper introduces a new method of pricing-Variable Unit Pricing. This method addresses both cost recovery and conservation simultaneously. It also is designed to satisfy economic efficiency-an aspect often ignored by utility rate-making procedures. Economic efficiency means maximization of aggregate net benefits from water utilization and supply methods. It requires that the last water unit consumed by each water user should have the same marginal benefit for each user. There is also a requirement regarding the relation between marginal benefit for each user and marginal cost of supply: if there are no user specific costs, marginal benefit should equal marginal cost of supply. The reason for these conditions is that-if they do not hold-then net benefits for the system could be increased, either by shifting from some uses of water to others, or by changing supply methods. VUP produces a quadratic total bill schedule, i.e. the price for all water units consumed increases with increasing consumption (assuming increasing marginal and average costs). Therefore, DRP is expected to be more effective for conservation needs than IBR in which only the marginal units are affected by the "marginal price."
North Central Journal of Agricultural Economics, 1984
Conjoint analysis, a technique which assigns part-worths (" utilities") to pres... more Conjoint analysis, a technique which assigns part-worths (" utilities") to prespecified levels of attributes to minimize differences between actual and predicted ranking of multiattribute alternatives, is used to derive trade-offs. Farmers ranked alternatives with specified levels ...
... political weights and related cost shares draws upon several previously proposed games, inclu... more ... political weights and related cost shares draws upon several previously proposed games, including repeated Prisoner's Dilemma games (Rosenthal, ... Hoffman, 1987), games of fair division (Friedman and Rosenthal, 1986), and alternating offer games (Rubenstein, 1982). ...
For a shared good, a group of users determines its nature and shares its cost. In spite of hetero... more For a shared good, a group of users determines its nature and shares its cost. In spite of heterogeneity in preferences and ability to pay, equal cost sharing is common for such goods. To facilitate group decision-making, this paper proposes institutions based on a method of tatonnement to find an efficient outcome with full cost recovery. To test their efficacy, four different types of institutions were experimentally compared. Processes differ with respect to message space and associated rules for cost share adjustment. Cost sharing algorithms were allied with unanimity voting to select the group outcome. Testing indicates that an institution with pure price-taking is more efficient than with bidding - with a higher rate of agreement - because bidding produces more strategic behavior.
A method to measure yield risk associated with new technologies based on the concept of stochasti... more A method to measure yield risk associated with new technologies based on the concept of stochastic production and the method of moments. is demonstrated. The method is applied to measure mean and variance of some new technologies introduced in Cameroon in 1986-89 under the SAFGRAD Project. Data used for the study include a long time series for weather and a short cross-sectional/time series for yield-weather-technology relationships.
ABSTRACT. Two different willingness-to-pay responses are compared-willingness to pay to avoid los... more ABSTRACT. Two different willingness-to-pay responses are compared-willingness to pay to avoid loss of air quality and willingness to pay to obtain gains in air quality. Contingent valuation data were used to estimate bid functions for these two types of responses for visibility and ...
Procedures are needed to evaluate the benefits of the provision of information. This paper shows ... more Procedures are needed to evaluate the benefits of the provision of information. This paper shows how to apply a money metric definition of the value of information for this purpose. The application is to microeconomic input choices for agricultural production, and the information to be valued concerns the effect of fertilization on sorghum yield. In this paper application both output price and output level are stochastic, and the probability distribution of output is affected by the chosen level of fertilizer.
Groundwater is a form of natural capital that is valued for the goods it provides, including ecos... more Groundwater is a form of natural capital that is valued for the goods it provides, including ecosystem health, water quality, and water consumption. Degradation of groundwater could be alleviated through social investment such as for water reuse and desalination to reduce the need for withdrawals from groundwater. This paper develops a participatory planning process-based on combining revealed preference with economic optimization-to choose a desired future for sustaining groundwater. Generation of potential groundwater futures is based on an optimal control model with investment and withdrawal from groundwater as control variables. In this model, groundwater stock and aquatic health are included as inter-temporal public goods. The social discount rate expressing time preference-an important parameter that drives optimization-is revealed through the participatory planning process. To implement the chosen future, a new method of inter-temporal pricing is presented to finance investment and supply costs. Furthermore, it is shown that the desired social outcome could be achieved by a form of privatization in which the pricing method, the appropriate discount rate, and the planning period are contractually specified.
Two different willingness to pay responses are compared - willingness to pay to avoid loss of air... more Two different willingness to pay responses are compared - willingness to pay to avoid loss of air quality and willingness to pay to obtain gains in air quality - for visibility and health. Contingent valuation data were used to estimate bid functions for these two types of responses. Comparison of the estimated models indicates that, in addition to magnitude differences,
Theory, Modeling and Experience in the Management of Nonpoint-Source Pollution, 1993
Chapter 9 REGIONAL MODELING AND ECONOMIC INCENTIVES TO CONTROL DRAINAGE POLLUTION Ariel Dinar, Ed... more Chapter 9 REGIONAL MODELING AND ECONOMIC INCENTIVES TO CONTROL DRAINAGE POLLUTION Ariel Dinar, Edna T. Loehman, Marcel P. Aillery ... One example is the attempt by the SJVDP1 to develop the Westside Agricultural Drainage Economic (WADE) model. ...
This paper presents a method of ameliorating externality problems when polluters and sufferers wo... more This paper presents a method of ameliorating externality problems when polluters and sufferers would like to take a cooperative approach, sharing costs of abatement and jointly deciding expenditure for abatement and environmental goals. The method for solving this joint problem uses decentralized messages among the involved participants concerning willingness to pay and proposals about environmental quality. The iterative process starts from exogenously specified cost shares that are then adjusted through personalized prices (which can be taxes or subsidies). The process arrives at equilibrium through price adjustment rules. The equilibrium of the process satisfies social efficiency by design. A simulated example shows that the method can solve a complex problem in a relatively few iterations.
Groundwater is a form of natural capital that is valued for the goods it provides, including ecos... more Groundwater is a form of natural capital that is valued for the goods it provides, including ecosystem health, water quality, and water consumption. Degradation of groundwater could be alleviated through social investment such as for water reuse and desalination to reduce the need for withdrawals from groundwater. This paper develops a participatory planning process-based on combining revealed preference with economic optimization-to choose a desired future for sustaining groundwater. Generation of potential groundwater futures is based on an optimal control model with investment and withdrawal from groundwater as control variables. In this model, groundwater stock and aquatic health are included as inter-temporal public goods. The social discount rate expressing time preference-an important parameter that drives optimization-is revealed through the participatory planning process. To implement the chosen future, a new method of inter-temporal pricing is presented to finance investment and supply costs. Furthermore, it is shown that the desired social outcome could be achieved by a form of privatization in which the pricing method, the appropriate discount rate, and the planning period are contractually specified.
For group decision about shared goods, the nature of the shared good and how its cost is to be sh... more For group decision about shared goods, the nature of the shared good and how its cost is to be shared among group members must be determined. Complexity arises from heterogeneity in preferences and endowments and nonlinear cost. To facilitate group decision, this paper proposes special type of group decision support system, a cost share adjustment process (CSAP), in which cost shares are adjusted iteratively via algorithmic rules until agreement is reached, ideally producing a socially optimal, cost feasible, and fair outcome. Design elements for CSAPs include message space, cost allocation and adjustment rules, controllers, and incentive rules, with many possibilities for a cost share adjustment process. In contrast to public good literature, our designs apply for situations of nonlinear cost,with economies of scale and fixed costs. Because of impossibility theorems, a design approach is developed: simulation and economic experiment are employed to compare alternative designs. As simulation and experiment both indicate, complicated rules for incentive purposes may impede locating group agreement. Instead of complicated economic incentive rules, economic experiments show that unanimity Approval Voting can mitigate the effects of strategic behavior.
Water pricing by water utilities and public water management agencies is becoming increasingly co... more Water pricing by water utilities and public water management agencies is becoming increasingly contentious as water scarcity increases. Increasing Block Rate pricing has been developed to address needs to conserve water. The use of IBR is increasing among utilities. For example, from a survey of 119 utilities in the Southwest Florida Water Management District: 11.8% used IBR in 1991 and 29.4% used IBR in 1997; the number of utilities with decreasing block and uniform rates decreased over this period.. Because there is no set prescription for setting the blocks, rate setting with IBR is fairly ad hoc (in contrast to average cost pricing). At the same time, many utilities are suffering revenue insufficiency as water users respond to both price and educational efforts by reducing use. This paper introduces a new method of pricing-Variable Unit Pricing. This method addresses both cost recovery and conservation simultaneously. It also is designed to satisfy economic efficiency-an aspect often ignored by utility rate-making procedures. Economic efficiency means maximization of aggregate net benefits from water utilization and supply methods. It requires that the last water unit consumed by each water user should have the same marginal benefit for each user. There is also a requirement regarding the relation between marginal benefit for each user and marginal cost of supply: if there are no user specific costs, marginal benefit should equal marginal cost of supply. The reason for these conditions is that-if they do not hold-then net benefits for the system could be increased, either by shifting from some uses of water to others, or by changing supply methods. VUP produces a quadratic total bill schedule, i.e. the price for all water units consumed increases with increasing consumption (assuming increasing marginal and average costs). Therefore, DRP is expected to be more effective for conservation needs than IBR in which only the marginal units are affected by the "marginal price."
North Central Journal of Agricultural Economics, 1984
Conjoint analysis, a technique which assigns part-worths (" utilities") to pres... more Conjoint analysis, a technique which assigns part-worths (" utilities") to prespecified levels of attributes to minimize differences between actual and predicted ranking of multiattribute alternatives, is used to derive trade-offs. Farmers ranked alternatives with specified levels ...
... political weights and related cost shares draws upon several previously proposed games, inclu... more ... political weights and related cost shares draws upon several previously proposed games, including repeated Prisoner's Dilemma games (Rosenthal, ... Hoffman, 1987), games of fair division (Friedman and Rosenthal, 1986), and alternating offer games (Rubenstein, 1982). ...
For a shared good, a group of users determines its nature and shares its cost. In spite of hetero... more For a shared good, a group of users determines its nature and shares its cost. In spite of heterogeneity in preferences and ability to pay, equal cost sharing is common for such goods. To facilitate group decision-making, this paper proposes institutions based on a method of tatonnement to find an efficient outcome with full cost recovery. To test their efficacy, four different types of institutions were experimentally compared. Processes differ with respect to message space and associated rules for cost share adjustment. Cost sharing algorithms were allied with unanimity voting to select the group outcome. Testing indicates that an institution with pure price-taking is more efficient than with bidding - with a higher rate of agreement - because bidding produces more strategic behavior.
A method to measure yield risk associated with new technologies based on the concept of stochasti... more A method to measure yield risk associated with new technologies based on the concept of stochastic production and the method of moments. is demonstrated. The method is applied to measure mean and variance of some new technologies introduced in Cameroon in 1986-89 under the SAFGRAD Project. Data used for the study include a long time series for weather and a short cross-sectional/time series for yield-weather-technology relationships.
ABSTRACT. Two different willingness-to-pay responses are compared-willingness to pay to avoid los... more ABSTRACT. Two different willingness-to-pay responses are compared-willingness to pay to avoid loss of air quality and willingness to pay to obtain gains in air quality. Contingent valuation data were used to estimate bid functions for these two types of responses for visibility and ...
Procedures are needed to evaluate the benefits of the provision of information. This paper shows ... more Procedures are needed to evaluate the benefits of the provision of information. This paper shows how to apply a money metric definition of the value of information for this purpose. The application is to microeconomic input choices for agricultural production, and the information to be valued concerns the effect of fertilization on sorghum yield. In this paper application both output price and output level are stochastic, and the probability distribution of output is affected by the chosen level of fertilizer.
Groundwater is a form of natural capital that is valued for the goods it provides, including ecos... more Groundwater is a form of natural capital that is valued for the goods it provides, including ecosystem health, water quality, and water consumption. Degradation of groundwater could be alleviated through social investment such as for water reuse and desalination to reduce the need for withdrawals from groundwater. This paper develops a participatory planning process-based on combining revealed preference with economic optimization-to choose a desired future for sustaining groundwater. Generation of potential groundwater futures is based on an optimal control model with investment and withdrawal from groundwater as control variables. In this model, groundwater stock and aquatic health are included as inter-temporal public goods. The social discount rate expressing time preference-an important parameter that drives optimization-is revealed through the participatory planning process. To implement the chosen future, a new method of inter-temporal pricing is presented to finance investment and supply costs. Furthermore, it is shown that the desired social outcome could be achieved by a form of privatization in which the pricing method, the appropriate discount rate, and the planning period are contractually specified.
Two different willingness to pay responses are compared - willingness to pay to avoid loss of air... more Two different willingness to pay responses are compared - willingness to pay to avoid loss of air quality and willingness to pay to obtain gains in air quality - for visibility and health. Contingent valuation data were used to estimate bid functions for these two types of responses. Comparison of the estimated models indicates that, in addition to magnitude differences,
Theory, Modeling and Experience in the Management of Nonpoint-Source Pollution, 1993
Chapter 9 REGIONAL MODELING AND ECONOMIC INCENTIVES TO CONTROL DRAINAGE POLLUTION Ariel Dinar, Ed... more Chapter 9 REGIONAL MODELING AND ECONOMIC INCENTIVES TO CONTROL DRAINAGE POLLUTION Ariel Dinar, Edna T. Loehman, Marcel P. Aillery ... One example is the attempt by the SJVDP1 to develop the Westside Agricultural Drainage Economic (WADE) model. ...
This paper presents a method of ameliorating externality problems when polluters and sufferers wo... more This paper presents a method of ameliorating externality problems when polluters and sufferers would like to take a cooperative approach, sharing costs of abatement and jointly deciding expenditure for abatement and environmental goals. The method for solving this joint problem uses decentralized messages among the involved participants concerning willingness to pay and proposals about environmental quality. The iterative process starts from exogenously specified cost shares that are then adjusted through personalized prices (which can be taxes or subsidies). The process arrives at equilibrium through price adjustment rules. The equilibrium of the process satisfies social efficiency by design. A simulated example shows that the method can solve a complex problem in a relatively few iterations.
Groundwater is a form of natural capital that is valued for the goods it provides, including ecos... more Groundwater is a form of natural capital that is valued for the goods it provides, including ecosystem health, water quality, and water consumption. Degradation of groundwater could be alleviated through social investment such as for water reuse and desalination to reduce the need for withdrawals from groundwater. This paper develops a participatory planning process-based on combining revealed preference with economic optimization-to choose a desired future for sustaining groundwater. Generation of potential groundwater futures is based on an optimal control model with investment and withdrawal from groundwater as control variables. In this model, groundwater stock and aquatic health are included as inter-temporal public goods. The social discount rate expressing time preference-an important parameter that drives optimization-is revealed through the participatory planning process. To implement the chosen future, a new method of inter-temporal pricing is presented to finance investment and supply costs. Furthermore, it is shown that the desired social outcome could be achieved by a form of privatization in which the pricing method, the appropriate discount rate, and the planning period are contractually specified.
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Papers by Edna Loehman