Can Reservoir Storage Be Uneconomically Large?

The effect of reservoir losses on the economically optimal use of reservoir storage capacity is explored theoretically and numerically. We demonstrate that reservoir seepage and evaporation losses lead to a trade-off between the reliability and mean level of water deliveries, and that as the price elasticity of demand increases and variability of inflows decreases, the optimal reservoir storage decreases. Corresponding reductions in the optimal maximum use of reservoir storage capacity as price elasticity of demand increases, variability of inflows decreases, and losses increase are illustrated. The approach helps clarify the role of storage in maximizing economic benefits from consumptive uses.