Ron Konecny, Ph.D., Associate Professor of Management & Marketing, University of Nebraska - Kearney, Kearney, Nebraska 68847, (308) 865-8461.

There are a variety of stakeholders interested in the allocation of Platte River flows. At times, the desires of these various groups are not compatible. Decision makers need to evaluate the impact of their policies, particularly considering the interconnectiveness of a river system. One approach widely used by economists in tracking the system-wide impact of a change in one component of the system is input/output analysis. Given the nature of the issues being considered in regard to the Platte River, input/output analysis provides decision makers with a measurement of the trade-offs resulting from allocation decisions.

One advantage input/output analysis has as a modeling technique is its ability to identify economic impacts given a limited data set. Thus, using available data, researchers were able to construct a thirty-four interindustry sector model designed to identify the impact of allocation choices. By including the final-demand and value-added components, the model can identify direct, indirect, and induced effects on the regional economy.

This study uses information from state and federal sources. In order to achieve the project goal of creating a baseline profile that can track future changes, the model uses 1993 data. This base year has the widest array of available data. For purposes of this project, consistency of data is a prime consideration. Therefore, the broad, consistent, existing data (sometimes referred to as "secondary") is more appropriate for model construction than a more limited menu of primary data.

The Middle Platte regional economy is the focus of this model. Impacts in all economic sectors resulting from changes in selected agricultural practices, industrial activity, and tourism activity are measured by this model. The model does not, however, assert or infer any linkages from the general economy to land use, habitat change, or water regulation policy. In other words, water regulation, land use, and habitat change are viewed as exogenous variables to the model. For example, the current law regarding conjunctive use of ground and surface water in determining water usage is the result of a political process, not the result of a model estimation.

There is considerable historical information concerning some of the model linkages. The importance of agriculture in local economic activity is well documented. However, other linkages are more problematic. While there is some type of linkage between habitat change and tourism, the exact nature of this particular linkage is not currently established for the Middle Platte region. Many different scenarios are possible with respect to a reallocation of Platte River water. Most common scenarios will include changes in tourism impacts and changes in agricultural practices due a to limitation in water availability.

BASELINE CURRENT USE

The baseline report focuses on the 1993 economy of the Middle Platte region by examining regional employment, income, supply, demand, trade, and exports. Scenarios, such as changes in tourism and irrigation use, are measured as deviations from the baseline.

The study region includes counties bordering the Platte River from Lincoln County to Platte County.

By examining the distribution of employment across the many parts of the local economy it is possible to see how unique the region is from the state, surrounding states, and even the nation. The following graph illustrates the general composition of labor in the major one-digit Standard Industrial Classification Codes. Because this information is based upon the U.S. Bureau of Economic Analysis (BEA) County Business Patterns data, agriculture and government are not included in this comparison.

As can readily be seen, the Middle Platte region resembles the Plains States and the nation quite well. Construction, transportation and utilities, wholesales trade, and finance- insurance-real estate (F.I.R.E.) are nearly identical to the national levels. The Middle Platte is surprisingly a little more dominant in the manufacturing sector than the national average and substantially stronger in this sector than the state average. The large retail component and somewhat smaller service component require a little further investigation.

Total employment in the region varies as the local economy moves through economic cycles. The growth years from 1960 to 1980 reflect a strong and vibrant economy. During the same period, agriculture experienced increasing efficiency with a variety of types of irrigation systems and new hybrids. The stagnant years of 1979 to 1987 reflect not only a short national recession but a long term farm crisis of declining land values compounded with a major financial institution crisis. Of particular interest is the fact that the proportion of employment in the different economic sectors remained relatively stable during growth and recession. The relative growth of retail trade with respect to all other sectors gives evidence that the Middle Platte is a functional trade area that serves a population from outside its boundaries. The 1993 Middle Platte distribution of retail trade shows the major components of retail trade. Comparing the mix of components of the Middle Platte to the national, state, and regional levels shows considerable similarity.

MODEL DEVELOPMENT

The comparison of the Middle Platte regional economy with the state and national economies supports one of the main prerequisites for using a demand side Leontief input/output model. The first essential assumption is relative economic stability. Though a region may vary in its overall production, the components of that production must remain in relative stable proportions. If this stability is exhibited then multiplier estimation is possible. As illustrated earlier, the Middle Platte region exhibits this stability.

The Leontief input/output model is a general equilibrium model. An average long-term economic impact is estimated from a given change in final demand consumption. This expectation is the second essential assumption. The assumption is constraining only when a single event shock effects the economy. Such an event is the relocation of a large factory, such as, the IBP locating a meat packing plant in Lexington. However, the assumption is easily held in regard to the type of scenarios the Middle Platte regional model is designed to address. When examining a tourism shift, the changes in the economy are caused by changes in thousands of individual consumption patterns. In this case, the statistical concept of the central limit theorem guarantees that the most likely true value will lie close to the estimated long term economic impact. Similarly, agricultural scenarios involve hundreds of individual farmers.

A selection of thirty-five industries defines the input/output model sectors. These sectors represent regional industries and services from a list of approximately 560 national industries and services. The regional model adjusts national production functions for regional trade, wage differentials, expenditure patterns, and regional and foreign exports. The producing sectors of the model are listed below. Additional sectors in the model include final demand components, value-added components, and household components. Since government spending does not directly relate to economic activity, the government sector is exogenous to the model.

The model is strictly based on demand side economics. That is, in order for a firm to produce a product, it must demand resources to fulfill the production. When a tourist purchases food, lodging, or binoculars, those items must have already been produced.

In contrast, a supply-side model assumes that the output of an industry is always consumed. The proverb, "you can't push a rope," is often applied to supply side models. Supply- side models are used in resource limitation applications that seem, at first glance, to apply in this situation. However, the theoretic underpinnings do not support a supply-side model for this application. For example, if there is not any seed corn available then there will be no corn harvest. Farmers may irrigate and fertilize all they desire, but unless they plant the corn there will not be a corn crop. Such impacts result in an extremely high multiplier effect. These effects, however, fail to realize that there are other options available to greatly mitigate the negative effect. In the previous example, the farmer could plant soybeans instead.

SCENARIO DEVELOPMENT

The model design estimates long term economic changes due to changes in expenditure patterns. Given the complexity of water policy issues, the model design uses information developed by experts in the biological and tourism fields. The model does not attempt to measure any direct or indirect changes in government policy, land use, agricultural practices, or habitat changes. Instead, experts in appropriate fields are required to determine expenditure changes based on policy changes. The feedback loop from the economy to the environment is explicitly truncated. The multidisciplinary components of the Platte Watershed project lend themselves well to scenario development.

CONCLUSION

The economic model of the Middle Platte region represents only a small part of the entire Middle Platte Socioeconomic Baseline report. This model utilizes information presented in the Baseline report in a consistent manner. Assumptions regarding the type of methodology are adequately met in the model design.

The process of scenario development will soon begin. Completion of the tourism and biologic components of the Platte Watershed project should provide reliable and consistent detail useful in impact assessment.

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Last updated by Darren A. Jack on 4/28/97