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Article

Theoretical and Empirical Characterization of Water as a Factor: Examples and Related Issues with the World Trade Model

1
ARAID (Aragonese Agency for Research and Development), Agrifood Institute of Aragon (IA2), Department of Economic Analysis, Faculty of Economics and Business Studies University of Zaragoza, 2-50005 Zaragoza, Spain
2
Faculty of Economics and Business, University of Groningen, 9747 AJ Groningen, The Netherlands
*
Author to whom correspondence should be addressed.
Academic Editor: Julio Berbel
Water 2021, 13(4), 459; https://doi.org/10.3390/w13040459
Received: 29 December 2020 / Revised: 1 February 2021 / Accepted: 6 February 2021 / Published: 10 February 2021
(This article belongs to the Special Issue Virtual Water Trade and Water Resources Economics)
This article originates from the theoretical and empirical characterization of factors in the World Trade Model (WTM). It first illustrates the usefulness of this type of model for water research to address policy questions related to virtual water trade, water constraints and water scarcity. It also illustrates the importance of certain key decisions regarding the heterogeneity of water and its relation to the technologies being employed and the prices obtained. With regard to WTM, the global economic input–output model in which multiple technologies can produce a “homogeneous output”, it was recently shown that two different mechanisms should be distinguished by which multiple technologies can arise, i.e., from “technology-specific” or from “shared” factors, which implies a mechanism-specific set of prices, quantities and rents. We discuss and extend these characterizations, notably in relation to the real-world characterization of water as a factor (for which we use the terms technology specific, fully shared and “mixed”). We propose that the presence of these separate mechanisms results in the models being sensitive to relatively small variations in specific numerical values. To address this sensitivity, we suggest a specific role for specific (sub)models or key choices to counter unrealistic model outcomes. To support our proposal we present a selection of simulations for aggregated world regions, and show how key results concerning quantities, prices and rents can be subject to considerable change depending on the precise definitions of resource endowments and the technology-specificity of the factors. For instance, depending on the adopted water heterogeneity level, outcomes can vary from relatively low-cost solutions to higher cost ones and can even reach infeasibility. In the main model discussed here (WTM) factor prices are exogenous, which also contributes to the overall numerical sensitivity of the model. All this affects to a large extent our interpretation of the water challenges, which preferably need to be assessed in integrated frameworks, to account for the main socioeconomic variables, technologies and resources. View Full-Text
Keywords: resource constraints; water; world trade model; multiple technologies; scarcity rents resource constraints; water; world trade model; multiple technologies; scarcity rents
MDPI and ACS Style

Cazcarro, I.; Steenge, A.E. Theoretical and Empirical Characterization of Water as a Factor: Examples and Related Issues with the World Trade Model. Water 2021, 13, 459. https://doi.org/10.3390/w13040459

AMA Style

Cazcarro I, Steenge AE. Theoretical and Empirical Characterization of Water as a Factor: Examples and Related Issues with the World Trade Model. Water. 2021; 13(4):459. https://doi.org/10.3390/w13040459

Chicago/Turabian Style

Cazcarro, Ignacio, and Albert E. Steenge 2021. "Theoretical and Empirical Characterization of Water as a Factor: Examples and Related Issues with the World Trade Model" Water 13, no. 4: 459. https://doi.org/10.3390/w13040459

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