Micro-macro feedback links of agricultural water management: insights from a coupled iterative Positive Multi-Attribute Utility Programming and Computable General Equilibrium model in a Mediterranean basin

Abstract Most water conservation policies will target agriculture, the largest human consumptive use and that concentrating the marginal (i.e. least productive) uses of the resource. Adaptation to irrigation rationing policies at the micro level will have an impact on agricultural outputs and propagate to the rest of the economic sectors at a regional and supra-regional (macro) scale. As the economy transitions towards new equilibrium commodity prices, the relevant prices for agriculture will change and this will in turn affect irrigators’ decisions. This paper proposes an iterative coupling between a decentralized, non-parametric Positive Multi-Attribute Utility Programming representation of irrigators and a regionally-calibrated Computable General Equilibrium model to assess interlinkages (i.e. two-way feedbacks) between the micro- and macro-economy. Results from an application to irrigation water charges in the Murcia Region in Spain show that the coupled micro-macro model yields lower abatement costs as compared to the stand-alone micro model.