Alternatives for Managing Drought: A Comparative Cost Analysis

The question addressed by this study is how a large urban water district can best respond to a drought. Using a computer model of a representative district, we find that a combination of conjunctive use and water marketing is well over an order of magnitude cheaper than the traditional alternative of constructing new storage capacity. The indicated cost saving can be explained by the intermittent nature of the transfer, corresponding to the intermittent demand. Comparing costs to benefits, the consumer-surplus loss otherwise entailed by raising prices to cut back on consumption in the event of a drought, we find that construction of new storage does not pass a benefit/cost test, but introduction of conjunctive use/water marketing does.