Browsing by Author "Haavisto, Riina"

In many parts of the world water is a scarce resource that needs to be managed sustainably and efficiently. In Chancay-Huaral basin in coastal Peru, water is distributed mainly between upstream located agriculture and downstream located municipal water supply system. The ever growing demand of water craves for efficient reallocation of the resource. The aim of this thesis is to develop a hydro-economic model for payments for watershed services (PWS) between agricultural and municipal water users. The model reflects changing land quality and is based on profit maximizing behavior of the program participants. The purpose is to study whether the PWS instrument would fit well to the institutional setting and if it encourages to more modest agricultural water use. The main emphasis is on the model but the PWS program design is discussed throughout the study. According to the model results, the PWS scheme does decrease agricultural water use and it provides an incentive for agriculture to participate in PWS program. The agricultural water use depends highly on the land allocation decision that is driven by the profitability of a crop in certain land quality. However, for municipal water supply system the incentive to participate in PWS program is not as strong, because the profit it obtains in the program is zero, whereas in other situations the profits are positive. While agricultural side of the model seems quite sensible, the future research would tackle the issue of linear municipal water demand and elaborate that part of the model. Also the consumers’ willingness to pay for drinking water is an interesting future research topic.