Research On Water Compensation In Beijing-Hebei Region

Beijing-Hebei region has a critical shortage in water resource and a sharp disequilibrium in economic development in China. There is a significantly positive among the resource scarcity, resource price and ownership interest in normal conditions according to economics. As the water source of Beijing, however, the economy gap between two regions increase daily as Hebei supply water to Beijing cheaply and freely. The primary cause lies in the deficiency of water-compensation policy.Water compensation is the downstream areas’cost to pay for extra usage to the upstream area. Before the water-compensation policy put into execution, there are several key point should be make certain, such as the theoretical and realistic foundation, the compensation’s standard and result, compensation’s price and scale, the compensation’s assistant policy and realization route. In the course of study, some Industrial Economics and Institutional Economics’ basic theory, such as Regional Industry, Factor Endowment, Price Theory and Property Rights Theory, are used to explain the above-mentioned key issues as soon as possible.Firstly, the article interprets the necessity, existence and possibility through the analysis of economics theoretical foundation, such as Coase Theorem, Karldor-Hicks Theory and Public Goods Theory. And then, the article introduces the water compensation background from four sides:natural environment, industrial structure, water supply-demand, and system regulation. Based on the water resource empowerment system, the article also devises the water compensation’s standard included Upstream-Priority, Equal-Rights and Usual-Practice. Meanwhile, a derivation process is provided to seek the possible results of water-compensation policy from process water and domestic water, and a comparison analysis is raised to test the actual result combined with economic variable of Beijing-Hebei region. In empirical study, using directional distance functions, the article research the compensation’s price and scale by calculating shadow price based on comparing the water efficiency between Beijing and Hebei. Finally, the article refers the cases about Lesotho Highlands Water Project and the California Water Bank, and advances a series of accompanying policy to assurance water compensation implement in Beijing-Hebei region. The specific contents include creating compensation fund, establishing multi-attribute decision mechanism, forming special institution, and building legal system.The characteristics of study are as follows. Firstly, the current studies about water compensation are almost scattered and non-systemic. The article makes a comprehensive explanation to the theoretical basis of water compensation. The article also makes a systemic analysis to the compensation price, compensation scale and implementation method combined with the actual data in Beijing-Hebei region. Secondly, cost-plus price is always main pricing method to water resource. The article puts forward to estimating compensation price by shadow price, which can better reflect the commodity attribute, better reveal the true value and better define the economic compensation of water resource. Finally, for shadow price, the current studies mainly solve the result by calculating first-order partial derivative equation of output function. The article estimates the shadow price by means of directional distance function, which is seldom used in the study of compensation price.The results show that the compensation space is enormous, and the distribution of water rights will not influence the effect of policy. Meanwhile, the water value in Beijing-Hebei region is underestimated, which lead to further underestimation of compensation’s price. Only through innovating compensation methods, water-compensation policy is able to put into effect in practical domain.