Improved Decisionmaking for Water Marketing Through Stochastic Modeling Under Climactic and Economic Uncertainty

Project ID: 8804
Principal Investigator: Bob Hamilton
Research Topic: Water Marketing
Funded Fiscal Years: 2005
Keywords: None

Research Question

* How can agricultural water districts and users under Federal projects make better decisions concerning the use of water banking, forbearance contracts, water exchanges and other emerging institutional mechanisms to address competing water uses resulting from drought and urbanization in the Western United States? (WS-5)

Need and Benefit

Reclamation's Water 2025 initiative has highlighted water marketing as an important component in alleviating water crisis and conflict in the Western United States.. Institutional mechanisms are being counted on to facilitate the shifting of water between competing uses efficiently, while ensuring full recognition to existing water rights and minimal impact on agricultural uses. The unfortunate trend of seeing water transferred out of agriculture, often to the detriment of farmers relying on continued water service, can be tempered by innovative practices that maximize the value of the assets controlled by agricultural water suppliers during periods of drought and during the urbanization process.

The Arkansas Valley in Colorado represents an important case study of emerging water markets, and these findings can be generalized throughout the Western United States. By temporarily transferring water to municipalities during times of scarcity, agricultural water suppliers and municipalities in the Arkansas Valley are beginning to see that continued agricultural production and municipal drought insurance can be attained at the same time. The profit center so to speak, for agricultural landowners and their canal systems is the value of their water supply to municipalities during times of drought. This profit center can, in turn, finance canal improvements from time to time, as well as making it possible for agricultural producers to withstand the pincer pressures of drought and growing municipal demands.

* What are the current market clearing prices for water in the Arkansas Valley, and under what water supply conditions?

* What would be the corresponding quantities of water potentially available in a water bank or other marketing type mechanisms at various times of the water year, and under high, medium and low water supply years?

These important pieces of information drawn from the Arkansas Valley case study will be a valuable tool in improving the use of these new institutional mechanisms elsewhere in the Western United States.

The research will address the following:

* Document and compare recent benefits and potential opportunity costs (potential risks to cooperating parties and/or economic losses) associated with leasing or transferring water through water banking, forbearance contracts or temporary exchanges in the Arkansas Valley. This will be compared with information on experiences that agricultural water suppliers in other areas of the Western United States have had with these mechanisms during the recent drought as well.

* Answer: what administrative changes to the presently legislated water transfer programs in the Arkansas Valley could be recommended to make it more likely for growers to use these institutional mechanisms in the future?

Contributing Partners

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Last Updated: 6/22/20