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Abstract
Increasing competition for water across sectors increases the importance of the river
basin as the appropriate unit of analysis to address the challenges facing water resources
management; and modeling at this scale can provide essential information for policymakers
in their resource allocation decisions. This paper introduces an integrated economic-hydrologic
modeling framework that accounts for the interactions between water
allocation, farmer input choice, agricultural productivity, nonagricultural water demand,
and resource degradation in order to estimate the social and economic gains from
improvement in the allocation and efficiency of water use. The model is applied to the
Maipo River Basin in Chile. Economic benefits to water use are evaluated for different
demand management instruments, including markets in tradable water rights, based on
production and benefit functions with respect to water for the agricultural and urban-industrial
sectors.