Matching users' rights to available groundwater
The amount of available groundwater in a catchment changes quickly, and the amount of water that users can take sustainably depends on where and when it is taken. However, rights to water tend to be fixed, and obtaining rights to water incurs high transaction costs. As a result, water catchments are over-allocated worldwide. In this paper, I show how a catchment manager could match users' rights to the available water, in near real time, despite uncertain future inflows, while making effective use of all available hydrological data. The solution uses the framework of a smart market. A smart market is a periodic auction cleared with the help of an optimization model. In addition to market clearing, this model allows a convenient means to adjust initial rights, and the auction revenue reflects the available water relative to users' rights. When the auction is revenue neutral, the catchment may be viewed as allocated perfectly. I suggest several ways in which a catchment manager can find this revenue-neutral allocation, assuming the manager has authority to adjust initial rights.
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