Managing Water Scarcity: An Evaluation of Interregional Transfers

An interregional trade model is developed for assessing the potential of limited market institutions to alleviate water scarcity. The model differs from those of Takayama and Judge, since curvilinear demand functions are employed and an unequal number of supply and demand regions are specified. The model is applied to California using regional supply and demand functions estimated for 1980, 1995, and 2020. The results show that water transfers can be substituted for new supplies to the extent that less than 100, 000 ac ft (123 × 10 6 m 3) of new capacity could be justified by 2020. The net benefits to buyers and sellers total 66 million for 1980 and rise to 219 million by 2020. The work also demonstrates that trade would lead to premature drawdown of groundwater resources in the absence of management and might create excess supply capacity for urban regions.