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Abstract
This paper applies a stochastic dynamic programming framework, incorporating links
to hydrological and biophysical models, to assess the economic costs of environmental
flows in an unregulated river system in the Namoi Valley of northern New South Wales,
Australia. Structural adjustment decisions are included in the model to account for
farmer responses to changes in environmental flows through the introduction of a water
sharing plan. The results of the analysis indicate that the proposed level of environmental
flows reduces water extractions by around 6 per cent, and imposes an opportunity
cost of less than 1 per cent in terms of reduced net income over a 20-year period.