Modeling Intrastate and Interstate Markets for Colorado River Water Resources

A river basin optimization model is presented for investigating performance of alternative market institutions for water resource allocation. We show that existing demands for Colorado River water cannot be fully satisfied given mean annual flows of 13.0 million acre-feet at Lee′s Ferry. Market transfers which minimize costs to consumptive users of such shortfalls may achieve as little as 50% of the incremental benefits possible with transfers, which incorporate the economic benefits of hydropower production and reductions in river salinity. Such efficient allocations would require large transfers from existing Upper Basin consumptive users, and annual deliveries to Mexico would exceed treaty obligations.