This book lies at the intersection of natural sciences, economics, and water en- neering and is in line with the long tradition of environmental economics at the University of Heidelberg. In the 1970s, the Neo-Austrian Capital Theory was developed using the fundamental laws of thermodynamics as a common language between the natural and social sciences. Niemes (1981) integrated the dynamic and irreversibility characteristics of the natural environment into the Neo-Austrian c- ital theory. Faber et al. (1983, 1987, 1995) then extended this interdisciplinary approach further to create a comprehensive, dynamic, environmental resource model. Over the last 3 decades, the theoretical foundations of environmental economics have been modi ed and there have been an impressive variety of applications. This book aims to reduce the gaps between economic theory, natural sciences, and engineering practice. One of the reasons these gaps exist is because economic assumptions are used to construct dynamic environmental and resource models, which are not consistent with the fundamental laws of the natural sciences. Another reason for the gap might be the distance between academic theory and real world situations. Based on an extended thermodynamic approach, the authors explain which economic assumptions are acceptable for constructing a dynamic model that is consistent with the natural sciences. In particular, the special role of water in the production and reproduction activities will be considered as an integral component.

This book has been used as a text in the Departments of Econo- mics at the University of Heidelberg (FRG) during the last decade and the University of Bern (Switzerland) during the last seven years. We therefore were glad when Dr. Muller of Springer-Verlag offered to publish a soft cover version of the second edition, to make the next economically more accessible to students. Heidelberg and Bern, January 1995 Malte Faber Horst Niemes Gunter Stephan Preface to the First Edition This book is one of the products of a three-year research project. Our objectives were: - to apply neo-Austrian capital theory to long-run problems of en- vironmental protection and resource use; - to develop an approach that takes physical relationships into consideration; - to narrow the gap between theory and practice in environmental economics. For this purpose, we established three interrelated research pro- grams. In the first of these we supplemented and generalized neo- Austrian capital theory (STEPHAN 1980, REISS 1981, FABER 1986). In the second which is presented in this volume we developed an interdisciplinary approach to natural resources. Using concepts and methods from thermodynamics we investigated environmental and resource problems and their interrelationships. Finally, in the third research program we authored the monograph "Umweltschutz und Input-Output-Analyse. Mit zwei Fallstudien aus der Wassergiite- wirtschaft" (Environmental Protection and Input-Output-Analysis.

This book lies at the intersection of natural sciences, economics, and water en- neering and is in line with the long tradition of environmental economics at the University of Heidelberg. In the 1970s, the Neo-Austrian Capital Theory was developed using the fundamental laws of thermodynamics as a common language between the natural and social sciences. Niemes (1981) integrated the dynamic and irreversibility characteristics of the natural environment into the Neo-Austrian c- ital theory. Faber et al. (1983, 1987, 1995) then extended this interdisciplinary approach further to create a comprehensive, dynamic, environmental resource model. Over the last 3 decades, the theoretical foundations of environmental economics have been modi ed and there have been an impressive variety of applications. This book aims to reduce the gaps between economic theory, natural sciences, and engineering practice. One of the reasons these gaps exist is because economic assumptions are used to construct dynamic environmental and resource models, which are not consistent with the fundamental laws of the natural sciences. Another reason for the gap might be the distance between academic theory and real world situations. Based on an extended thermodynamic approach, the authors explain which economic assumptions are acceptable for constructing a dynamic model that is consistent with the natural sciences. In particular, the special role of water in the production and reproduction activities will be considered as an integral component.