Estimating the Economic Value of Water for Agriculture and Other Industries in Tennessee

Tennessee’s currently abundant water resources could eventually become stressed as population continues to rise, climate change impacts water resources, and as agricultural producers continue to increase irrigation. These stresses could impact the productivity of the agricultural sectors and other economic sectors as competition for limited water resources increases. Farmers, policymakers, and researchers alike could benefit from quantifying the economic value of water to help formulate cost-effective and sustainable water use practices. This analysis establishes the water withdrawals (also referred to as “water use”) per dollar of output for competing economic sectors and uses those values in an Input-Output Linear Programming (IOLP) model to maximize gross regional product to the Tennessee economy. Shadow values are also determined for each industry using the IOLP model. The accounting matrix of economic activity is from the Impact Analysis for Planning model (IMPLAN), and total water withdrawals and water withdrawal coefficients were found using a combination of data from the United States Geological Survey (USGS), the United States Department of Agriculture (USDA), and IMPLAN.

The results of this model indicate that water use in the agricultural and governmental sectors have relatively low economic values while water use in the real estate, forestry inputs, and insurance sectors have high economic values. These results are observed with both the water use coefficients in Chapter 1 and the marginal contributions to gross regional product in Chapter 2.