Water scarcity and the potential gains from water trading in southern Alberta

Abstract

Water management in the face of scarcity is becoming a serious issue as governments attempt to reconcile the competing demands for water. The escalating costs of developing new water supplies have turned attention toward market based water management solutions that reflect the economic value of water. The research presented in this thesis simulates a private water market in Southern Alberta, allowing for trade of surface water rights among four river sub-basins and among agricultural and non-agricultural users. Non-linear mathematical programming is employed to determine and compare static, optimal solutions for the water allocation problem under four specific scenarios. This approach determines the resulting water prices, volume allocations and welfare benefits to Alberta, as a result of allowing trade. The distribution of the total welfare gain is shown to vary considerably according to the choice of institutional regime and property rights that accompanies the introduction of water trading under scarcity.