Dynamic Computable General Equilibrium Model and Sensitivity Analysis for Shadow Price of Water Resource in China

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He, Jing, Chen, Xikang, Shi, Yang and Li, Aihua (2007) Dynamic Computable General Equilibrium Model and Sensitivity Analysis for Shadow Price of Water Resource in China. Water Resources Management, 21 (9). pp. 1517-1533. ISSN 0920-4741

Abstract

A novel dynamic computable general equilibrium model based on National Water Resource Input Holding Output Table is proposed to calculate the Shadow Price of water resource in China. Unlike previous approaches, the dynamic Shadow Price of water resource is largely based on the scarcity extent and can reflect the marginal long-term value in the balanced growth path of China. Firstly, the basic concepts of dynamic Input Output analysis and Turnpike Theory are reviewed. Then, Dynamic Computable General Equilibrium (DCGE) is elaborated to calculate the Shadow Price, including the definition and computer-based algorithm. Furthermore, Shadow Price of water resource in China from 1949 to 2050 is calculated based on the DCGE. Also the sensitivity analysis of the DCGE for Shadow Price of water resource in China is presented. Dynamic Shadow Price of water resource has two meanings for China government: (1) Project evaluation. Every large-scale project in China must have national economic evaluation and the dynamic Shadow Price is prerequisite for national economic evaluation. (2) Market price of water resource. A lesson from this paper is that Shadow Price of water resource in domestic market of China should be rewritten according to the dynamic Shadow Price. In addition, the parallel computations approach could also be used to solve these problems in different countries or for different natural resources.

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Item type Article
URI https://vuir.vu.edu.au/id/eprint/3299
DOI https://doi.org/10.1007/s11269-006-9102-7
Subjects Historical > FOR Classification > 1402 Applied Economics
Historical > FOR Classification > 1401 Economic Theory
Historical > Faculty/School/Research Centre/Department > School of Engineering and Science
Keywords ResPubID18729, water resource, shadow price, dynamic, computable general equilibrium, input output analysis, sensitivity analysis
Citations in Scopus 20 - View on Scopus
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