To charge or to cap in agricultural water management. Insights from modular iterative modeling for the assessment of bilateral micro-macro-economic feedback links

Abstract This paper develops an iterative micro-macro-economic modeling framework to assess agricultural water management policies including feedbacks between local and economy-wide impacts. The main contribution of the paper is the introduction of a set of bidirectional protocols that work through land use and price changes to model the bilateral feedbacks between the micro and macro scales. The proposed framework is applied to the Castile and Leon Region in Spain, where we assess the performance of two alternative water conservation policies (charges and caps) and compare results to those obtained using a conventional stand-alone microeconomic model. We find that, as compared to the proposed modular framework, the assessment of water conservation policies using conventional stand-alone microeconomic models is expected to overestimate water conservation and underestimate economic performance. Overall, our results suggest that water conservation targets can be achieved with lower economic losses than those anticipated by conventional stand-alone microeconomic models.