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Abstract
Proposals for marginal cost water pricing have often been found to be politically infeasible because current users will have to pay a higher price even though future users will be better off. We show how efficiency pricing can be rendered Pareto-improving, and thus politically feasible, by compensating the users suffering a loss due to higher prices. We also provide a method for determining efficient spatial and inter-temporal water management for a system with consumption at significantly different elevations supplied from a renewable coastal aquifer, which is subject to salinity if over-extracted.