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The objective of this study is to determine the average annual income and income variance of alternative irrigation water allocations and associated supply reliabilities in the Murrumbidgee Valley. Traditionally, water supply authorities have aimed to supply irrigators with their full allocations in all but the most severe drought years. This means that a substantial amount of water is held in storage as a reserve and in most years it is not utilised for irrigation or other, including environmental, purposes. In a climate where maximum economic returns for resources are required, water supply authorities are now reconsidering this policy of high reliability with a view to expanding water use for agricultural and environmental purposes. This study uses linear programming, combined with a hydrology simulation model developed by the NSW Department of Water Resources, to analyse various water allocation scenarios for irrigation and their associated supply reliabilities over a 99 year simulation period. The results of the study indicate which levels of water allocation and supply reliability increase regional net income and lead to changes in revenue variance. Depending on society's tradeoff preference for income and income variance, an optimal water allocation and supply reliability can be determined.


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