Welfare implications of regional economic models with application to the Animas-La Plata Project

This study investigates the potential of three alternative regional economic models for assessing welfare implications of market linkages associated with irrigation development. Empirical emphasis is placed on conceptual and methodological issues relating to secondary costs arising from public finance. Models are applied to measurement of secondary welfare impacts resulting from agricultural development and state financing of the Animas-La Plata Project, a proposed water supply development in Southwestern Colorado.; Conceptually, secondary costs arising from public finance have identical justification as secondary benefits of public projects. Secondary costs are secondary benefits forgone with the alternative use of project capital. A priori, there is no reason to include any secondary welfare effects related to investment or finance unless measured inefficiencies or rents exist in linked markets.; Input-output analysis has been a frequent choice for evaluating welfare implications of market linkages even though the method is inherently inadequate for this purpose. Input-output calculates incomes but not surplus. Linear programming and computable general equilibrium methodologies have conceptual advantages over input-output models in that scarce resources, income flows and consequent welfare impacts can be considered more directly. Rudimentary consideration of factor supply and demand functions are allowed using step functions.; The TFS regional modelling method allows for inclusion of continuous factor demands and supplies as they affect income payments and consequent consumption. Interactions of the regional economy with the national economy and explicit production functions allow for factor substitution and factor price changes.; Results of the models generally indicate that, exclusive of construction effects, the project will provide little in economic gains or economic losses to the state. Some industrial sectors, and consumers outside of the southwestern region may suffer economic losses because of the state's finance share. Total benefits will be determined by the economic viability of agriculture in the region, and the extent to which construction factors are imported.