Southern California Water Markets: Potential and Limitations

Water marketing in Southern California has been increasingly sought to augment water supply for both urban and agricultural users, although it has yet to become a wide spread mechanism of water allocation. This paper explores the potential and limitations for Southern California water markets using an economic-engineering network flow optimization model, CALVIN. CALVIN is used to identify the most limiting constraints to a free water market in Southern California, to estimate how a market would affect overall Southern California water use, to preliminarily assess the economic benefit of more flexible policies, and to explore the characteristics of a free market. Results from CALVIN suggest substantial economic benefits exist for implementing water market mechanisms and these economic benefits could be achieved with relatively small quantities of reallocation of agricultural water. An ideal water market in Southern California also would reduce pressure to increase imports from the State Water Project and the Colorado River as higher valued urban water shortages are decreased.

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