The term “hydraulic society” describes the ancient cities and social systems that relied on irrigated agriculture, such as Egypt's Nile Valley. For 5,000 years, the annual cycle of floods replenished the Nile region's soil and nutrients, eliminating the need for complex canal systems such as those found in the Sumerian and Mesopotamian regions. California is the first hydraulic society that is rapidly developing into a postindustrial economy; this change will require the partial re-allocation of our water resources. California should attempt to move toward a decentralized, resilient “ancient Egyptian” model of water allocation rather than continue with a centralized but less responsive “Mesopotamian” model. A hydraulic society can be destabilized by drought conditions, degradation of water quality, and the inability of distribution systems to adapt to social or economic changes. Although hydraulic societies are ecologically unstable due to their modification and specialization of the ecosystem, changing the system of social feedback can compensate for this rigidity.

This research uses laboratory experiments to test alternative water market institutions designed to protect third-party interests. The institutions tested include taxing mechanisms that raise revenue to compensate affected third-parties, and a free market in which third-parties acti vely participate. We also discuss the likely implications of a command-and-control approach in which there are fixed limits on the volume of water that may be exported from a region. The results indicate that there are some important trade-offs in selecting a policy option. Although theoretically optimal, active third-party participation in the market is likely to result in free-riding that may erode some or all of the efficiency gains, and may introduce volatility into the market. Fixed limits on water exports are likely to result in a more stable market, but the constraints on exports will result in lower levels of social welfare. Taxing transfers and compensating third-parties offers a promising balance of efficiency, equity and market stability.

The research summarized in this report involves three interrelated analyses. First, we construct a theoretical nonpoint source (NPS) pollution control model and derive the optimal budget tradeoff between direct treatment of polluting sources versus data collection, which facilitates information acquisition and learning about the relative pollution loading among the sources. Second, we develop a sequential entropy filter to statistically update estimated NPS pollution loading parameters, as new data becomes available. We apply the entropy method to stream flow and ambient sediment loading data for Redwood Creek, which flows into and through Redwood National Park. Third, the theoretical and methodological results are incorporated into a sediment control model for Redwood Creek. We simulate the sediment control management program to provide policy analysis by comparing a uniform treatment policy where no data is collected against high and low-intensity data collection policies, The simulation results indicate that the high and low-intensity data collection policies can reduces uncertainty, increasing treatment effectiveness, so that sediment related damages are lower than damages under the uniform treatment policy.

Given the importance of regional response in physical and economic terms to water resources planners, large scale regional models are a widely used component of water resource management. Given the absence of a sufficiently rich data base to estimate cost functions by econometric approaches, linear constrained optimization models have been extensively used to derive normative estimates of former response to water policy.

A long standing problems in linear models is the inevitable trade-off between the precision of calibration of the model and the constrained nature of the solution. Often model results significantly depart from empirical reality with deleterious effects on policy. This research shows that a nonlinear cost function formulation overcomes the constraint problem when the function parameters are estimated from actual farmer responses.

The Positive Quadratic Programming (PQP) theory developed was applied to the California Agricultural and Resource Model (CARM) and used to estimate demand functions for irrigation water by region.

Infectious animal diseases are an ever-present threat to intensive livestock production. We analyzed control technology for foot-and-mouth disease (FMD) in a livestock-intensive region of the Central Valley, using a previously developed, numerical, optimal disease-control model. We found that the alternative FMD controls we studied (early detection, herd depopulation and vaccination) can be partially substituted for one another (substitutability) without substantially changing outbreak costs. This information can be used to develop effective and efficient policies to prepare for an FMD outbreak in California.

This paper employs an economic-engineering optimization model to explore water supply options for environmental restoration of the Colorado River Delta, Mexico. Potential water sources include reductions in local agricultural and urban Water use through water markets, wastewater reuse, and additional Colorado River flows from the United States. For these alternatives, the optimization model estimates operating and water scarcity costs, water scarcity volumes, and marginal economic costs of environmental flows and values of additional Colorado River flows from the United States over a range of required delta environmental flows. Economic values for agricultural and urban water uses were estimated by two ancillary models. The results provide insights into economically promising water supplies for restoration activities. Quantifying the trade-off between agricultural and urban economic valuation and environmental flows provides a framework for decision makers to quantify their valuation of environmental flows. The model also provides a framework for integrating additional knowledge of the system as information becomes available.

The primary purpose of this paper is to provide updated estimates of domestic own-price, cross-price and income elasticities of demand and estimated price elasticities of supply for various California commodities. Flexible functional forms including the Box-Cox specification and the nonlinear almost ideal demand system are estimated and bootstrap standard errors obtained. Partial adjustment models are used to model the supply side. These models provide good approximations in which to obtain elasticity estimates. The six commodities selected represent some of the highest valued crops in California. The commodities are: almonds, walnuts, alfalfa, cotton, rice, and tomatoes (fresh and processed). All of the estimated own-price demand elasticities are inelastic and, in general, the income elasticities are all less than one. On the supply side, all the short-run price elasticities are inelastic. The long-run price elasticities are all greater than their short-run counterparts. The long-run price supply elasticities for cotton, almonds and alfalfa are elastic, i.e., greater than one. Policy makers can use these estimates to measure the changes in welfare of consumers and producers with respect to changes in policies and economic variables.

Sea level rise, large-scale flooding, and new conveyance arrangements for water exports may increase future water salinity for local agricultural production in California’s Sacramento–San Joaquin Delta. Increasing salinity in crop root zones often decreases crop yields and crop revenues. Salinity effects are nonlinear, and vary with crop choice and other factors including drainage and residence time of irrigation water. Here, we explore changes in agricultural production in the Delta under various combinations of water management, large-scale flooding, and future sea level rise. Water management alternatives include through-Delta water exports (current conditions), dual conveyance (through-Delta and a 6,700 Mm³ yr^‑1 [or 7500 cfs] capacity peripheral canal or tunnel) and the flooding of five western islands with and without peripheral exports. We employ results from previous hydrodynamic simulations of likely changes in salinity for irrigation water at points in the Delta. We connect these irrigation water salinity values into a detailed agro-economic model of Delta agriculture to estimate local crop yield and farm revenue losses. Previous hydrodynamic modeling work shows that sea level rise is likely to increase salinity from 4% to 130% in this century, depending on the increase in sea level and location. Changes in water management under dual conveyance increase salinity mostly in the western Delta, and to a lesser extent in the north, where current salinity levels are now quite low. Because locations likely to experience the largest salinity increases already have a lower-value crop mix, the worst-case losses are less than 1% of total Delta crop revenues. This result also holds for salinity increases from permanent flooding of western islands that serve as a salinity barrier. Our results suggest that salinity increases could have much smaller economic effects on Delta farming than other likely changes in the Delta such as retirement of agricultural lands after large-scale flooding and habitat development. Integrating hydrodynamic, water salinity, and economic models can provide insights into controversial management issues.