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The Welfare Implications of Bankruptcy Allocation of the Colorado River Water: The Case of the Salton Sea Region


This paper focuses on assessing a policy for reallocation of Colorado River water for major stakeholders in the state of California, to set a standard for sustainable long-term public and environmental use. We address the policy of allocating scarce water resources to competing stakeholders of different sectors in the Salton Sea region under over-committed water rights agreement. We determine the value of water applied to the agricultural, urban and tourist sectors to estimate the regional welfare under different allocation frameworks. We use two models for allocation: one involving a social planner approach that maximizes regional welfare, the second focusing on the bankruptcy rules of proportional deficit (cutback), and constrained equal award. We find the proportional cutback framework to be less conducive to regional welfare, although it presents a more politically feasible and robust option.

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