1. Modelling sustainable management of the Murray- Darling Basin John Quiggin Risk and Sustainable Management Group Schools of Economics and Political Science, University of Queensland

2. Web sites RSMG http://www.uq.edu.au/economics/rsmg/index.htm Quiggin http://www.uq.edu.au/economics/johnquiggin WebLog http://johnquiggin.com

5. Key issues Competing demands for water use Irrigation Urban water supply (Adelaide) Environmental flows Salinity Other environmental issues

7. Salinity Dryland salinity Clearance of deep-rooted tree species raises the water table Irrigation-related salinity Direct damage from saline irrigation water Raised water tables from application of water Return flows are crucial

8. Other problems Water quality & algal blooms Biodiversity & loss of habitat Wetlands and stream flow

9. Policy Responses The Cap National Water Initiative Council of Australian Governments (COAG) Integrated Catchment Management Planning

10. Outstanding policy issues Risk allocation and management New and old claims on water Security and flexibility Risk and uncertainty are central

11. Early modelling approach Murray River salinity — an illustrative model’, American Journal of Agricultural Economics 70(3), 635–45. Optimal land allocation Sequential regional models State variables are water flows and salt loads Myopic and global optima

12. Data sources Partial budgets Historical flow information Modelling of salinity dynamics and impacts Production statistics

13. Expanded scope and aims State-contingent representation of uncertainty Catchment level modelling of entire Murray-Darling Basin More crops and alternative technologies

14. Uncertainty A crucial factor Most variable of the world’s major systems Uncertainty about policy Climate change Monte Carlo and related methods Given an idea of range No real modelling of farmers’ responses State-contingent production Standard economic analysis of uncertainty

15. State-contingent approach Set of possible states of nature In this case, annual precipitation State-contingent outputs Arrow-Debreu Amenable to programming approach in principle Data problems

16. Current state of progress Three states of nature Sequential and globally optimal solutions Multiple technologies

17. Issues and applications Economic impact of drought Climate change Risk and design of property rights