The Economics of Water Infrastructure Investments in the Dong Nai River Delta

The Dong Nai River Delta is the home of extensive agricultural production areas and the main urban center of economic activity in South Vietnam. The Delta is currently subject to extreme seasonal hydrologic conditions. Flooding occurs in the rainy season due to heavy rains, high tides and tropical storms, while salinity accumulates in the dry season as result of low river flows and high sea tides. Changes in the physical forces governing the Delta, such as the sea level and the runoff patterns, are likely to aggravate current problems. Water infrastructure investments have been proposed as a long-term strategy for managing both expected physical changes and regional development in the Delta. This dissertation proposes an economic framework for analyzing water infrastructure investments in the context of climate change and economic development.;The first part of this dissertation focuses on the analysis of water infrastructure investments to mitigate the effects of increased salinization of agricultural land during the dry season. Sluice gate construction has been identified as a suitable option to control salinity in the Delta. A mathematical programming model of agricultural production is developed in chapter 2 to examine the effects of increased salinity on agricultural production losses, which provide the economic justification for sluice gate investments. The model is used to deduce possible adjustments in the extensive margin as a response to salinity. Chapter 2 further explores the implications of introducing salt resistant rice varieties for the estimation of agricultural damages due to salinity. Results suggest that production losses can be alleviated by switching to crops with higher tolerance for salinity.;An economic model of sluice gate construction is developed in chapter 3. This model uses a dynamic optimization framework to analyze the appropriate timing and location of sluice gate investments in the delta. Results suggest that given the significant costs of construction, early sluice gate investment is not economical if salinity increases are gradual over time. Investments are also delayed when the possibility of adjusting cropping patterns and introducing salt-resistant varieties are taken into account. The model also considers the optimal location of the sluice gate. Results suggest that abandoning regions closer to the sea and concentrating salinity control in upstream regions is more efficient, because downstream regions have lower productivity and imply higher investment costs, and because sluice gates do not need to be as wide.;The last part of this dissertation focuses on the analysis of water infrastructure investments to alleviate the effects of increased flooding during the rainy season. Chapter 4 presents a dynamic optimization model of dike investments. The model is used to analyze the optimal timing and amount of dike height increases as a response to increased flooding probability and urban growth. Dike construction costs typically increase non-linearly in height and involve a fixed cost. Results suggest that increasing dike heights gradually in response to changing conditions is preferred to an early adjustment of dikes to future flood conditions. Moreover, it is more efficient to reinforce dikes at periodic intervals, given fixed costs. Prioritizing flood protection on the sole basis of efficiency can lead to inequitable outcomes. The model predicts that poorer areas will be subject to lower protection standards.