Dynamic marginal cost curves to support water resources management

Journal article, 2024

Marginal cost curves (MCCs) are popular decision-support tools for assessing and ranking the cost-effectiveness of different options in environmental policy and management. However, conventional MCC approaches have been criticized for lack of transparency and disregard for complexity; not accounting for interaction effects between measures; ignoring ancillary benefits and costs; and not considering intertemporal dynamics. In this paper, we present an approach to address these challenges using a system dynamics (SD)-based model for producing dynamic MCCs. We describe the approach by applying it to evaluate efforts to address water scarcity in a hypothetical, but representative, Swedish city. Our results show that the approach effectively addresses all four documented limitations of conventional MCC methods. They also show that combining MCCs with behavior-over-time graphs and causal-loop diagrams can lead to new policy insights and support a more inclusive decision-making process.