Economic impact of alternative policy responses to prolonged and severe drought in the Rio Grande Basin

In the Rio Grande Basin, water is overallocated, demands are growing, and river flows and uses are vulnerable to drought and climate change. Currently, the basin is in the third year of severe drought; irrigation and municipal water diversions have been severely curtailed; extensive diversions threaten endangered species, and reservoir volumes are nearly depleted. A central challenge is development of policies that efficiently and equitably allocate the basin's water resources among competing uses across political and institutional jurisdictions. A basin- wide, nonlinear programming model optimizes resource allocations and water use levels for the upper part of the Rio Grande Basin to test whether institutional adjustments can reduce damages caused by drought. Compared to existing institutions, we find that future drought damages could be reduced by 20 and 33% per year through intracompact and interstate water markets, respectively, that would allow water transfers across water management jurisdictions. Results reveal economic tradeoffs among water uses, regions, and drought control strategies.