Optioning Agricultural Water Rights for Urban Water Supplies During Drought
Option contracts for temporary use of irrigation water rights are evaluated as a
less-expensive institutional arrangement for providing drought insurance for urban water
agencies. Desirable option contract provisions are suggested and a framework for
evaluating the economic benefits of water supply options is proposed. An integrated
analytical system simulating the hydrologic, institutional, and economic relationships for
a case study area in northeast Colorado is developed to evaluate the economic feasibility
of water supply option contracts. Estimated present value benefits and sensitivity
analyses indicate that dry year water options are economically viable over a
considerable range of conditions.
Key words: droughts, economic evaluation, irrigation water, option contracts,
simulation models, water markets, water rights.
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