Modelling water resource allocation: a case study on agriculture versus hydropower production

In this paper we propose an economic model for the optimum allocation of water within a given area with the following features. First, the introduction of the institutional, geographical and time scheme under which the water rights are granted. Secondly, the establishment of a modelling framework for these characteristics which influence and are, in turn, influenced by two particular circumstances, namely the irregular conditions of the upstream flows and the possible new requirements of some of the users. Particular attention is paid to the influence of the time and space variables on both the water demand and supply conditions. The application of the model to a specific case confirms the potential of the analysis as a basis for achieving improvements in water allocation from the former administrative-based rules to new flexible and tradable water rights. In both case, gains are obtained from the exchange and we can note the implications of the time and space variables on the optimal allocations.