Allocating Water among Alternative Uses

Economic criteria for determining the allocation of water among competing uses and users are developed. A profit-maximizing firm will allocate water to a particular use unit the marginal value product from the use of water equals the price of water. If there is a limited quantity of water available and there are many competing uses and users water should be allocated so that the marginal value productivity of water will be equated for all uses and users. Physical and institutional factors may impede the use of economic criteria. The effect of these factors on allocation decisions is analyzed. The application of these economic criteria to water allocation situations involves many and difficult problems of estimation. These problems include obtaining estimates of production functions, marginal physical productivities and marginal value productivities of water, costs of obtaining water and the supplies available for allocation.