A Post Keynesian Environmental Macroeconomic Model for Agricultural Water Sustainability under Climate Change in the Murray-Darling Basin, Australia
Climate change has profound consequences for the agriculture of south-eastern Australia and its climate-induced water shortage in the Murray-Darling Basin. Post Keynesian Economics (PKE) macro-dynamics, along with Kaleckian investment and growth theory, are used to develop an ecological-economic system dynamics model of this complex nonlinear river basin system. The Murray- Darling Basin Simulation Model (MDB-SM) uses the principles of PKE to incorporate the fundamental uncertainty of economic behaviors of farmers regarding the investments they make and the climate change they face, particularly as regards water ecosystem services. MDB-SM provides a framework for macroeconomic policies, especially for long-term fiscal policy and for policy directed at the sustainability of agricultural water, as measured by socio-economic well-being considerations, which include sustainable consumption and investment in the river basin. The model can also reproduce other ecological and economic aspects and, for certain parameters and initial values, exhibit endogenous business cycles and ecological sustainability with realistic characteristics. Most importantly, MDBSM provides a platform for the analysis of alternative economic policy scenarios. These results reveal the importance of understanding water ecosystem adaptation under climate change by integrating a PKE macroeconomic analytical framework with the system dynamics modelling approach. Once parameterised and supplied with historical initial values, MDB-SM should prove to be a practical tool to provide alternative long-term policy simulations of agricultural water and socio-economic well-being.
Digital Object Identifier (DOI): doi.org/10.5281/zenodo.1080082Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 1809
 H. Hotelling, "The economics of exhaustible resources," The Journal of Political Economy, vol. 39, no. 2, pp. 137-175, 1931.
 K. J. Arrow, "The economic implications of learning by doing," The Review of Economic Studies, vol. 29, no. 3, pp. 155-173, 1962.
 K. J. Arrow and A. C. Fisher, "Environmental preservation, uncertainty, and irreversibility," The Quarterly Journal of Economics, vol. 88, no. 2, pp. 312-319, 1974.
 P. Dasgupta and G. Heal, "The optimal depletion of exhaustible resources," The Review of Economic Studies, vol. 41, pp. 3-28, 1974.
 K. Arrow, P. Dasgupta, and K.-G. Mler, "Evaluating projects and assessing sustainable development in imperfect economies," Environmental and Resource Economics, vol. 26, no. 4, pp. 647-685, 2003.
 K. Arrow, P. Dasgupta, L. Goulder, G. Daily, P. Ehrlich, G. Heal, S. Levin, K. G. Maler, S. Schneider, D. Starrett, and B. Walker, "Are we consuming too much?" Journal of Economic Perspectives, vol. 18, no. 3, pp. 147-172, 2004.
 K. J. Arrow, G. Daily, P. Dasgupta, P. Ehrlich, L. Goulder, G. Heal, S. Levin, K. G. Maler, S. Schneider, D. Starrett, and B. Walker, "Consumption, investment, and future well-being: Reply to daly et al," Conservation Biology, vol. 21, no. 5, pp. 1363-1365, 2007.
 K. G. Maler, "Sustainable development and resilience in ecosystems," Environmental & Resource Economics, vol. 39, no. 1, pp. 17-24, 2008.
 K. G. Maler, S. Aniyar, and A. Jansson, "Accounting for ecosystems," Environmental & Resource Economics, vol. 42, no. 1, pp. 39-51, 2009.
 B. Walker, L. Pearson, M. Harris, K. G. Maler, C. Z. Li, R. Biggs, and T. Baynes, "Incorporating resilience in the assessment of inclusive wealth: An example from south east australia," Environmental & Re¬source Economics, vol. 45, no. 2, pp. 183-202, 2010.
 S. Hallegatte, M. Ghil, P. Dumas, and J. C. Hourcade, "Business cycles, bifurcations and chaos in a neo-classical model with investment dynamics," Journal of Economic Behavior & Organization, vol. 67, no. 1, pp. 57-77, 2008.
 Lucas, R. E. and T. J. Sargent, "After keynesian macroeconomics," Quarterly Review, no. Spr, 1979.
 R. J. Barro, "New classicals and keynesians, or the good guys and the bad guys," National Bureau of Economic Research, Inc, Tech. Rep., May 1989.
 N. G. Mankiw, "The reincarnation of keynesian economics," European Economic Review, vol. 36, no. 2-3, pp. 559-565, 1992.
 N. G. Mankiw, D. Romer, and D. N. Weil, "A contribution to the empirics of economic growth," The Quarterly Journal of Economics, vol. 107, no. 2, pp. 407-437, 1992.
 H. E. Daly, "Towards an environmental macroeconomics," Land Eco¬nomics, vol. 67, no. 2, pp. 255-259, 1991.
 P. A. Lawn, "On heyes' isee proposal to establish an environmental macroeconomics," Environment and Development Economics, vol. 8, no. 01, pp. 31-56, 2003.
 C. Carraro, R. Gerlagh, and B. v. d. Zwaan, "Endogenous technical change in environmental macroeconomics," Resource and Energy Eco¬nomics, vol. 25, no. 1, pp. 1-10, 2003.
 R. M. Solow, "A contribution to the theory of economic growth," The Quarterly Journal of Economics, vol. 70, no. 1, pp. 65-94, 1956.
 , "Technical change and the aggregate production function," The Review of Economics and Statistics, vol. 39, no. 3, pp. 312-320, 1957.
 , "The economics of resources or the resources of economics," American Economic Review, vol. 64, no. 2, pp. 1-14, 1974.
 Arrow, B. Bolin, R. Costanza, P. Dasgupta, C. Folke, C. S. Honing, B.-O. Jansson, S. Levin, K.-G. Mier, C. Perrings, and D. Pimentel, "Economic growth, carrying capacity, and the environment," Ecological Economics, vol. 15, no. 2, pp. 91-95, 1995.
 D. I. Stern, "Limits to substitution and irreversibility in production and consumption: A neoclassical interpretation of ecological economics," Ecological Economics, vol. 21, no. 3, pp. 197-215, 1997.
 R. Meinzen-Dick, "Beyond panaceas in water institutions," Proceedings of the National Academy of Sciences of the United States of America, vol. 104, no. 39, pp. 15 200-15 205, 2007.
 R. U. Ayres, "Sustainability economics: Where do we stand?" Ecological Economics, vol. 67, no. 2, pp. 281-310, 2008.
 Vercelli, Sustainable development, rationality, and time. Dordrecht: Kluwer Academic Publishers, 1998, p. 259276.
 G. H. Brundtland, Our common future, Report of the World Council For Economic Development. New York: Oxford University Press, 1987.
 L. Pasinetti, "The cambridge school of keynesian economics," Cam¬bridge Journal of Economics, vol. 29, no. 6, pp. 837-848, 2005.
 J. M. Keynes, The General Theory of Employment, Interest and Money. London: Palgrave Macmillan, 1936.
 Kalecki, "Trend and business cycles reconsidered:' Economic Jour¬nal, vol. 78, no. 310, pp. 263-276, 1968.
 M. Lavoie, Introduction to Post-Keynesian Economics, 2nd edition, 2nd ed. Basingstoke: Palgrave Macmillan, 2009.
 M. Setterfield, Ed., Handbook of Alternative Theories of Economic Growth. Cheltenham, UK, Northampton, MA, USA: Edward Elgar Pub, 2010.
 K. Dutt, "Stagnation, income distribution and monopoly power:' Cambridge Journal of Economics, vol. 8, no. 1, pp. 25-40, 1984.
 E. Hein, M. Lavoie, and T. van Treeck, "Some instability puzzles in kaleckian models of growth and distribution: a critical survey," Cambridge Journal of Economics, vol. 35, no. 3, pp. 587-612, 2011.
 D. Adamson, T. Mallawaarachchi, and J. Quiggin, "Water use and salin¬ity in the murray-darling basin: A state-contingent model," Australian Journal of Agricultural & Resource Economics, vol. 51, no. 3, pp. 263¬281, 2007.
 CSIRO, "Water availability in the murray-darling basin: A report to the australian government from the csiro murray-darling basin sustainable yields project," CSIRO, Tech. Rep., 2008, @Zhao.
 D. Adamson, T. Mallawaarachchi, and J. Quiggin, "Declining inflows and more frequent droughts in the murraydarling basin: climate change, impacts and adaptation," Australian Journal of Agricultural & Resource Economics, vol. 53, no. 3, pp. 345-366, 2009.
 Australian Bureau of Statistics, "Water and the murray-darling basin -a statistical profile, 2000-01 to 2005-06," 2008.
 -, "Year book australia 2009-10," Tech. Rep., 2010.
 ABS/ABARE/BRS, "Socio-economic context for the murray-darling basin," Murray-Darling Basin Authority, Tech. Rep., 2009.
 L. C. Botterill, "Uncertain climate: The recent history of drought policy in australia," Australian Journal of Politics and History, vol. 49, no. 1, pp. 61-74, 2003.
 Australian Bureau of Statistics, "Australian historical population statis-tics, 2008," 2008.
 , "Population projections, australia, 2006 to 2101," 2008.
 C. Richardson and P. Romilly, "Investment functions and the profitability gap," Journal of Post Keynesian Economics, vol. 31, no. 1, pp. 35-56, 2008.
 E. Ostrom, M. A. Janssen, and J. M. Anderies, "Going beyond panaceas," Proceedings of the National Academy of Sciences of the United States of America, vol. 104, no. 39, pp. 15 176-15 178, 2007.
 E. Ostrom, "A diagnostic approach for going beyond panaceas," Pro-ceedings of the National Academy of Sciences of the United States of America, vol. 104, no. 39, pp. 15 181-15 187, 2007.
 W. A. Brock and S. R. Carpenter, "Panaceas and diversification of environmental policy," Proceedings of the National Academy of Sciences of the United States of America, vol. 104, no. 39, pp. 15 206-15 211, 2007.