Economic Engineering of Environmental and Water Resource Systems

Economics and engineering are kindred disciplines and have frequently exchanged fundamental ideas over their long history. Modern engineering and economics share common ancestors in the French engineering schools of the late eighteenth century to the mid-nineteenth century (Langins 2004; Ekelund and Hebert 1999; Hayek 1950). The origins of both modern neoclassical (Ekelund and Hebert 1999) and socialist (Hayek 1950) traditions of economics occurred when French engineers tried to determine how to best apply engineering principles to problems of societal importance.

Engineers have always been concerned not only with how to build things, but also with deciding where and how large facilities should be built; and in a more strategic sense, they have become concerned with how to finance facilities (Frontinus 97AD). Benefit-cost analysis methods regarding such problems date back to Navier in the early 1800s; and today’s economic view of such problems begins largely with Jules Dupuit (Ekelund and Hebert 1999; Dupuit 1844). Dupuit was a member of the French Corps of Civil Engineers and a graduate of L'École Nationale des Ponts et Chaussees. He is best known in engineering today for the Dupuit assumption in hydraulics, which he developed while working on the sewers of Paris. However, his most widespread intellectual contribution is the idea of “consumers’ surplus,” which is the economic value of goods and services that consumers receive above and beyond the price to consumers. This idea is at the core of modern microeconomic theory (Dupuit 1844; Ekelund and Hebert 1999). Dupuit developed the idea of consumers’ surplus while trying to determine the optimal capacity of a canal, on the basis of its economic benefits and costs. The costs of construction and operation were not difficult to estimate. However, quantifying the economic benefits was (and remains) more difficult.

In the American engineering tradition, despite widespread adoption of French ideas in most areas, economic ideas in engineering undergraduate curricula are largely restricted to what is now traditional engineering economics, with some concerns for optimizing particular facilities (Wellington 1887). However, from time to time, economic ideas have been more broadly applied to system design and infrastructure policies. Since 1936, federal requirements for evaluating the net economic benefits of water-resource projects certainly fall within the Dupuit and Navier tradition of economics in civil works. Academically, the Harvard Water Program (Maass, et al. 1966) and programs at other schools—notably Cornell University and Johns Hopkins University’s Department of Geography and Environmental Engineering in the 1970s and early 1980s—have closely tied economics and engineering. It is now commonplace to find economic and engineering traditions rejoined in advanced water-resource engineering education in much of the world, as illustrated by the background, research, and curricula offered by many of the engineering authors in this volume. Expanding on traditional engineering economics, economic engineering emphasizes wider practices of economic principles to support decision making, more flexible and integrated management, benefit valuation, plan design, alternative evaluation, finance, and the design of management institutions (Braden 2000; Griffin 1998).

The present set of papers continues and extends this long tradition of cross-fertilization between economic and engineering thinking in water-resources management and engineering. The simultaneous application of ideas from both fields not only provides insights for understanding and solving water problems but also enriches the two disciplines involved. As water problems become more complex and vexing and require solutions that are well integrated into often-conflicting social and economic objectives, the broadening of ideas for understanding and solving water problems should be especially welcome.

Some major insights into water engineering and management arise from applying economic ideas in several areas, including the following:

This paper next reviews these areas.

This special issue has collected a variety of integrated economic-engineering perspectives on water resource management. Some papers are by economists who address more traditional engineering topics. Others are by engineers, who in the tradition of Jules Dupuit, find that some economic ideas are useful to solve or understand an important problem. The papers deal with a wide variety of problems, ranging from microscale household water conservation decisions (Alcubilla and Lund), to local agency and district policies (Griffin; Brown and Rogers), to large regional scale operations involving many institutions and interests (Kirsch and Characklis; Marques, et al.; Pulido-Velázquez, et al.; Ringler and Cai; Ward, et al.; Watkins and Moser), as well as integrated hydrologic-economic modeling issues (Cai and Wang). Two technical notes highlight specific economic aspects of common facilities (Traviglia and Characklis; Booker and O’Neill). The issues involved cover the wide range of contemporary water-management problems and management actions, from water-use efficiency and conservation, economic water-demand estimation, water pricing, forecasting, environmental valuation, and conjunctive use of ground and surface waters to more traditional options of reservoir sizing and operations and facility cost estimation. The resulting collection of papers thus exemplifies well the value of combining economic and engineering ideas for diverse applications of advances in water resources management. We hope that others find this collection useful and illustrative of the work remaining to be done.