Research Statement
My research interests are in environmental and natural resource economics, applied microeconomics, international trade and game theory. My current work focuses on the economics of rivers from two perspectives. One is the quantity allocation of international rivers in a setting where riparian countries are involved in international trade. The other is the water quality control in irrigated agriculture regions.
International rivers constitute a large proportion of the surface water systems on the earth, which are typically subject to conflict as individual countries perceive individual gains from increased use of the resource. This inherent conflict is also reflected in analytical studies which are typically partial equilibrium and hence naturally assume that welfare functions are increasing in the resource allocation. The question arises if there are ever circumstances such that it is in the joint self-interest of political entities to share the resource in a general equilibrium setting.
This question is addressed in my job market paper in the context of two countries which trade goods and services but also have joint access to a scarce resource (e.g. an international river basin). The analysis is based on a two-stage equilibrium model. Economic equilibrium with Ricardian trade is solved given a specific resource allocation. The trade model is then used to generate country welfare functions as a function of the allocation. These welfare functions then enter into a game-theoretic model which determines political equilibrium.
The results are striking. In the autarchic case, country welfare is increasing in water allocation as expected. However, when trade is allowed, then in some instances, the welfare functions can be non-monotone; that is, starting from some initial allocation, it can actually be in the self-interest of one country to give up water to another country. Furthermore, there can be instances in which the highest level of welfare for one country is achieved with joint use of the resource as opposed to having a full allocation of the resource. At a minimum, where productivity coefficients imply a comparative advantage such that trade occurs, then the level of conflict as measured by the gains from an additional allocation of the resource, will be reduced.
In the second stage trade-water game, we construct a two-player two-strategy game, in which one country controls water allocation and the other country chooses trade policy, that is to trade with the first country or not. The emerging Nash Equilibrium largely depends on the initial water allocation and the parameters in the model. Nevertheless, an outcome in which one country voluntarily gives up water to another country could be obtained owing to the non-monotonicity of welfare functions.
In general, the analysis indicates that some of the perceived conflict may be due to a narrow (partial equilibrium) focus on the natural resource. When the analytical and policy framework is broadened out to a more comprehensive general equilibrium framework, then the level of the conflict (gains from an increased allocation of the resource) may very well be reduced or even - in some cases - alleviated.
The next paper is about the impacts of more diversified trade policies on the allocation of international water resources. In the game-theoretic part of the job market paper, the country that has control of trade polices only has two options, namely autarky or free trade. This is extended in the second paper by allowing a continuous trade policy set, which is a range of import quotas. The introduction of an import quota into the model affects the country welfare functions over water when they interact in trade, which further affects the equilibrium outcome in the water allocation-trade game.
Given the complexity of the problem, the equilibrium is solved numerically by converting the problem to the Negishi format, and then iterating over welfare weights until the budget constraints are satisfied. The welfare functions over water is not explicitly derived, but welfare levels given any combination of water allocation and import quota can be obtained. Hence, one country's reaction function of the water allocation to another country's import quota and vice versa could be derived and plotted out. The interaction of the two reactions function give the political equilibrium in the constrained trade policy model.
The last paper concerning the water quality investigates the river management problem in a quite different way from the previous two papers. It is an integrated hydrologic-economic water quality model in irrigated agriculture regions, with application to the California San Joaquin Valley. The most concerned water quality issue in this region is salinity. Irrigated farming are affected by saline water, which also drains into the surface water system, making the water downstream even more saline.
The model is tackled in both common property and efficient perspectives. The area of interest is divided into several farming zones. In the common property case, each zone maximizes its own irrigation profit, by choosing the crops, the irrigation systems, and the water to apply to each crop, without considering the effects to the river. The efficient case integrates the profits of all zone in the area, taking into account the hydrologic relations, such as water balance, salt mass balance, and possible downstream water quantity and quality standards.
My future research will continued to focus on the quantity and quality aspects of rivers, incorporation of other fields like international trade and game theory into environmental and natural resource problems. I am also very interested in working on river systems in China.
International rivers constitute a large proportion of the surface water systems on the earth, which are typically subject to conflict as individual countries perceive individual gains from increased use of the resource. This inherent conflict is also reflected in analytical studies which are typically partial equilibrium and hence naturally assume that welfare functions are increasing in the resource allocation. The question arises if there are ever circumstances such that it is in the joint self-interest of political entities to share the resource in a general equilibrium setting.
This question is addressed in my job market paper in the context of two countries which trade goods and services but also have joint access to a scarce resource (e.g. an international river basin). The analysis is based on a two-stage equilibrium model. Economic equilibrium with Ricardian trade is solved given a specific resource allocation. The trade model is then used to generate country welfare functions as a function of the allocation. These welfare functions then enter into a game-theoretic model which determines political equilibrium.
The results are striking. In the autarchic case, country welfare is increasing in water allocation as expected. However, when trade is allowed, then in some instances, the welfare functions can be non-monotone; that is, starting from some initial allocation, it can actually be in the self-interest of one country to give up water to another country. Furthermore, there can be instances in which the highest level of welfare for one country is achieved with joint use of the resource as opposed to having a full allocation of the resource. At a minimum, where productivity coefficients imply a comparative advantage such that trade occurs, then the level of conflict as measured by the gains from an additional allocation of the resource, will be reduced.
In the second stage trade-water game, we construct a two-player two-strategy game, in which one country controls water allocation and the other country chooses trade policy, that is to trade with the first country or not. The emerging Nash Equilibrium largely depends on the initial water allocation and the parameters in the model. Nevertheless, an outcome in which one country voluntarily gives up water to another country could be obtained owing to the non-monotonicity of welfare functions.
In general, the analysis indicates that some of the perceived conflict may be due to a narrow (partial equilibrium) focus on the natural resource. When the analytical and policy framework is broadened out to a more comprehensive general equilibrium framework, then the level of the conflict (gains from an increased allocation of the resource) may very well be reduced or even - in some cases - alleviated.
The next paper is about the impacts of more diversified trade policies on the allocation of international water resources. In the game-theoretic part of the job market paper, the country that has control of trade polices only has two options, namely autarky or free trade. This is extended in the second paper by allowing a continuous trade policy set, which is a range of import quotas. The introduction of an import quota into the model affects the country welfare functions over water when they interact in trade, which further affects the equilibrium outcome in the water allocation-trade game.
Given the complexity of the problem, the equilibrium is solved numerically by converting the problem to the Negishi format, and then iterating over welfare weights until the budget constraints are satisfied. The welfare functions over water is not explicitly derived, but welfare levels given any combination of water allocation and import quota can be obtained. Hence, one country's reaction function of the water allocation to another country's import quota and vice versa could be derived and plotted out. The interaction of the two reactions function give the political equilibrium in the constrained trade policy model.
The last paper concerning the water quality investigates the river management problem in a quite different way from the previous two papers. It is an integrated hydrologic-economic water quality model in irrigated agriculture regions, with application to the California San Joaquin Valley. The most concerned water quality issue in this region is salinity. Irrigated farming are affected by saline water, which also drains into the surface water system, making the water downstream even more saline.
The model is tackled in both common property and efficient perspectives. The area of interest is divided into several farming zones. In the common property case, each zone maximizes its own irrigation profit, by choosing the crops, the irrigation systems, and the water to apply to each crop, without considering the effects to the river. The efficient case integrates the profits of all zone in the area, taking into account the hydrologic relations, such as water balance, salt mass balance, and possible downstream water quantity and quality standards.
My future research will continued to focus on the quantity and quality aspects of rivers, incorporation of other fields like international trade and game theory into environmental and natural resource problems. I am also very interested in working on river systems in China.