IEc. Assessing Economy-wide Effects: An Application of the Methods Paper Recommendations for Uganda s Ministry of Water and Environment

Transcription

1 IEc Assessing Economy-wide Effects: An Application of the Methods Paper Recommendations for Uganda s Ministry of Water and Environment Jim Neumann, Industrial Economics (IEc) Collins Amanya, Uganda MWE Kenneth Strzepek, IEc, MIT, and Harvard Kennedy School March 15, 2018

2 The paper in a nutshell Introduction and motivation Literature review Near-term practical recommendations focused on: applications for LMICs available resources and data to draw on Discussion 2

3 BCA and Economy-wide models Starting point for assessing economy-wide effects of health and environmental interventions in support of benefit-cost analysis stated by Varian (1989): "We start from a simple methodological premise: there is only one correct way to do cost-benefit analysis. First, formulate an economic model that determines the entire list of prices and incomes in an economy. Next, forecast the impact of some proposed change on this list of prices and incomes. Finally, use the utility functions of the individual agents to value the pre- and post-change equilibria. The resulting list of utility changes can then be summarized in various ways and presented to decision-makers." 3

4 The Result 4

5 MWE s Contributions to Economic Growth 5

6 THE ANALYTICAL FRAMEWORK Channels of Impact via of Biophysical Models

7 Hooks to the CGE via Production Biophysical Hooks for Water Impacts on Economy Production Function Net Investment Flood Protection >>> K (Capital) Increase Depreciation WASH >>> L (Labor supply) WASH >>> Reduced Health Costs, More Investment Irrigation >>> A (Crops) Water Quality >>> A (Fish, Livestock) The impacts are channeled to the CGE in a similar fashion as air pollution health impacts (that affect labor supply and health services)

8 Results of BCA within the CGE Benefits example for flood mitigation channel 8

9 Example Channel: WASH Urban and Rural Water Coverage Rates Population growth projections Age structure of population Avoided diarrheal incidents by coverage Incrementally covered people Incrementally covered children Time spent collecting water Incrementally covered adults Cost per incidence Avoided Incidences Extra time available for schooling Ten year delay CGE INPUTS Health Saving Skilled Labor Force Available Labor Hours

10 Results of BCA within the CGE Benefits example for WASH channel CUMULATIVE HEALTH CARE SAVINGS BETWEEN THE MODERATE AND BAU SCENARIOS, AND THE HIGH AND BAU SCENARIOS (MILLION USD). Investment Scenario Central Eastern Northern Western Moderate BAU $193.6 $235.7 $285.1 $154.4 High BAU $224.6 $271.0 $340.2 $177.6 IMPACT OF ENHANCED INVESTMENT ON INCREASE OF LABOR HOURS ENDOWMENT RELATIVE TO 2015 PANEL A: CHANGE IN TOTAL LABOR HOUR ENDOWMENT Investment Scenario Time Period Central Eastern Northern Western % 0.5% 0.5% 0.5% Moderate BAU % 2.3% 3.4% 1.8% % 3.1% 4.1% 2.4% % 1.2% 1.4% 1.0% High BAU % 2.7% 3.8% 2.2% % 3.7% 4.7% 3.0% PANEL B: CHANGE IN SKILLED LABOR HOUR ENDOWMENT Investment Scenario Time Period Central Eastern Northern Western % 0.1% 0.1% 0.1% Moderate BAU % 1.4% 2.1% 1.1% % 2.7% 3.4% 2.3% % 0.2% 0.2% 0.1% High BAU % 1.2% 1.4% 1.1% % 2.8% 3.0% 2.6% 10

11 WHEN NOT TO USE CGE MODELS In general, economy-wide models are likely to provide small incremental insights, compared to partial equilibrium or static approaches, when: 1) the policy or investment is a small marginal change relative to the size of the economy; 2) when benefits are largely confined to a short-term time horizon; and 3) when the costs and/or the benefits are largely confined to a single economic sector. 11

12 WHEN TO USE CGE MODELS By extension, the literature summarized suggests that economy widemodeling tools are best applied when the following conditions are in place: Sufficient data exist. Effects are large. Effects have a cumulative nature over time Inter-sectoral implications are likely 12

13 Recommendations to Improve Application of CGE 1. Improve the sub-national collection of economic, social, public health, natural resource and civil infrastructure data 2. Conduct a major effort to quantify and develop mathematical relationships for the impacts between health-based interventions/projects/programs and their outcomes on human activities (e.g. number of reduced diarrheal events per capita for increased clean water supply.) 3. Develop within governments the required interdisciplinary analytical teams to bring economy-wide assessments to bear on crucial public policy questions. This may be the largest challenge in the way of greater adoption of these tools, faced equally in developed and developing country settings. 13

14 Case Study - Results of BCA within the CGE - Costs MEAN ANNUAL INVESTMENT COSTS BY SECTOR ($MILLIONS) Investment Moderate-BAU Investment High-BAU Investment Water Storage $13 $31 $45 $24 $55 $79 Irrigation $8 $18 $23 $27 $60 $76 Water Development Livestock $1 $2 $2 $10 $15 $19 Household* $25 $29 $46 $35 $32 $56 Environmental Management Industry and Services $3 $11 $28 $5 $15 $35 River Flow Management $0.2 $0.1 $0.1 $0.2 $0.1 $0.1 Forest Rehabilitation $41 $46 $46 $135 $50 $50 Wetlands Restoration $67 $74 $74 $185 $0 $0 Note: Costs in undiscounted annual $2015 USD (millions), averaged over 10 year periods centered on the year shown. *Household sector includes water supply and sanitation programs. 14

15 Case Study: Benefits by Channel in GDP Terms SIZE OF IMPACTS IN DIFFERENT INVESTMENT SCENARIOS Cumulative GDP gains (billion USD) Channel BAU to Mod BAU to High Crop Production Livestock Production Timber Management Flood Damage to Infrastructure Water Filtration Water Available for Production Ecosystem Protection Water Supply and Sanitation Fuelwood Hydropower Generation All channels Total Investment Cost Ratio GDP Gains to Cost

16 Challenges for the BCA case study Investment costs in this study have multiple benefits (e.g., water storage costs) this results in a classic joint costs problem. Significant non-linearities in the nature of benefits attributed to individual investments complicating the joint costs disaggregation Main focus on benefits side was to parameterize CGE so benefits not directly monetized Large omitted categories of benefits: In health sector, WTP to avoid waterborne disease Ecosystems values for wetlands and forests, beyond the partial ecosystem service values used in the CGE 16

17 THANK YOU IEc 17