437 The Economics of Distributing Water in the Musi Catchment of the Krishna Basin: Assessing the Private Costs and Benefits Brian Davidson 1,* , Petra Hellegers 2 , Paul Glennie 3 , Biju George 3 and Hector Malano 3 1 Faculty of Land and Food Resources, University of Melbourne, Parkville. 2 International Water Management Institute, Hyderabad. 3 Department of Civil and Environmental Engineering, University of Melbourne, Parkville. * Corresponding author: b.davidson@unimelb.edu.au Abstract Mature water markets are characterized by scarcity. In these markets it is a question of how to share a limited resource amongst competing users. An example of a mature water market is the Musi catchment, in India, as water is demanded in increasing amounts for domestic and industrial use in the city of Hyderabad. Supplying more water to Hyderabad increases the amount available in a downstream wastewater irrigation scheme, but also reduces the amount of water available to irrigators elsewhere in the system. The purpose in this paper is to outline a model that is capable of assessing the private economic impacts of redistributing water around a mature market. Given that water distribution schemes involve massive public investment, a more ideal model would be based on a social benefit cost methodology. In addition, as the driving force for change in the model is water flows, an ideal model should be capable of incorporating changes in water supply. Thus, it should be capable of being linked to a hydrological model. Finally, given that water has both a spatial and a temporal element to it, an ideal model must be capable of assessing the impacts changes may have on diverse regions at different times. In this paper the first step towards that type of model is made. The model presented in this paper accounts for only the private benefits and costs of redistributing water within a system. In achieving this objective the Musi catchment, a sub basin of the Krishna River, is used as a case study to explain and test the model. Ultimately, the model presented in this paper will be incorporated within another more ideal model. KEY WORDS: Water markets, Musi catchment, social benefit cost methodology, Krishna River Introduction In this paper the documentation of a linked hydro-economic model of the Musi sub basin is presented. The aim is to use the model to assess the competing demands for a limited resource. Within the basin there are a number of ways of balancing the demands from agricultural, industrial and domestic users. These include principally either by spending a large amount on infrastructure to treat and recycle wastewater, or by redistributing the existing resources. What makes this basin interesting is that farmers use wastewater from the city, complete with its nutrient pollutants, to irrigate crops. It is hard to think of a solution in the basin in which agriculture is not affected, either through the quantity or quality of water it receives. In this paper these problems are not resolved. Rather, aspects of a method and a model through which these problems could be addressed are presented. For more details on the general approach to modeling the whole basin see Davidson et al. (2006). While the whole basin needs to be modeled from a social perspective, using a benefit cost analysis and attached to a hydrological model, the private costs and benefits of redistributing water around the Musi basin can be assessed initially and separately. In undertaking this task what is modeled is the impact of moving water from one part of the basin to another, from the perspective of those who lose and those who gain from any redistribution.