Market exchange impact on water supply planning with water quality

A market-based water supply problem is modeled as an optimization problem maximizing net benefit from water use such that all the concerned parties use an economically optimal allocation considering damages due to total dissolved solids (TDS) and institutional constraints. These institutional constraints include water supply requirements under international treaty and historical allocations of water to agriculture. The income from water in municipal use, based on the concept of consumer surplus, is utilized in the objective function along with benefit from agricultural uses, supply costs, and damage costs due to poor quality water, which are estimated using available data. The research assesses the impact that system-wide optimal allocation of water will have in increasing monetary benefits and reducing water salinity levels in terms of TDS along the reach of the Rio Grande from Elephant Butte, New Mexico, to Fort Quitman, Texas. The analysis is performed under three institutional constraints, which include flow regulation at the reservoir, restrictions on trade between states, and allowing trade between the states. Among these scenarios, allowing trade between the states results in the best solution in terms of both net benefit and reducing damage due to poor quality water.