Economically Driven Simulation of Regional Water Systems: Friant-Kern, California Guilherme F. Marques 1 ; Jay R. Lund 2 ; Mark R. Leu 3 ; Marion Jenkins 4 ; Richard Howitt 5 ; Thomas Harter 6 ; Steve Hatchett 7 ; Nels Ruud 8 ; and Susan Burke 9 Abstract: This paper develops and applies an economically driven simulation model for California’s Friant-Kern system, a region characterized by diverse water sources employed predominantly for commercial irrigated agriculture, with significant local water trading activity. The economic-engineering simulation approach highlights the importance of representing user economic decisions for water systems in a context of complex physical and infrastructure systems dominated by economic water uses. The model simulates how water users conserve, select supplies and make water exchange and market decisions in response to water costs and availability, and provides estimates of economic and operational impacts of alternative policies for the Friant-Kern system. Results show that high surface water prices cause farmers to pump more groundwater, disturbing an existing conjunctive use system and aggravating regional groundwater overdraft. DOI: 10.1061/ASCE0733-94962006132:6468 CE Database subject headings: Water management; Simulation; Agriculture; Economic factors. Introduction Water resource systems are operated to provide water, food, power, transportation, recreation, and environmental protection e.g., instream flows. Users who employ water to produce these outputs are organized as farms, commercial enterprises, house- holds, and industries operating under market conditions for eco- nomic objectives. Engineering simulation models commonly support decision making and water management, representing storage and convey- ance operations as well as physical, chemical, and biological pro- cesses. Models designed to simulate economic behavior have long included price-quantity relationships Samuelson 1952; Takayama and Judge 1964; Dupuit 1844. In water management, employing price-quantity relationships to drive water use decisions can im- prove engineering simulation of water systems and provide better insight regarding engineering operations such as water source choice, water transfers, reservoir operation, and conjunctive use of surface and groundwater, and their economic impacts. Eco- nomic demands for water express water users’ behavior and re- actions to variations in water cost, availability, reliability, and technology. Water users commonly make decisions on water use quantity and supply sources, and in some regions users interact in water markets, exchanges, and pricing schemes involving mul- tiple sources for mutual profit and benefit Vaux 1986. Many economic models of water management, while properly representing the economic nature of water demands, have rather limited representation of the diverse water availability and opera- tion decisions occurring spatially and temporally in complex sys- tems Burt 1964; Young and Bredehoeft 1972; Vaux and Howitt 1984; McCarl et al. 1999; Gillig et al. 2001. On the other hand, traditional engineering simulation models for water management and operations typically represent water demands noneconomi- cally as requirements or strict priorities Sigvaldason 1976; Chung et al. 1989; Andrews et al. 1992; Dai and Labadie 2001. In some situations e.g., systems dominated by economic water uses, it can be useful for engineering models to simulate the economic behavior of water users, including their selection of supply sources, water allocation decisions, and water conserva- tion measures in response to complex water cost, availability, and technology conditions. This work combines economic representation of water de- mands with simulation of complex physical and infrastructure water system within a contemporary engineering water resources model, MODSIM Labadie 1995. This approach should provide 1 Assistant Professor, Academic Dept. of Civil Engineering, Centro Federal de Educação Tecnológica, CEFET-MG Av. Amazonas, 7675, Belo Horizonte—Minas Gerais, Brazil 30510-000. E-mail: gmarques@ des.cefetmg.br 2 Professor, Dept. of Civil and Environmental Engineering, Univ. of California, Davis, CA 95616. E-mail: jrlund@ucdavis.edu 3 Consultant, CH2MHILL, 2485 Natomas Park Dr., Suite 600, Sacramento, CA 95833-2937. E-mail: mleu@CH2M.com 4 Professional Research Engineer, Dept. of Civil and Environmental Engineering, Univ. of California, Davis, CA 95616. E-mail: mwjenkins@ ucdavis.edu 5 Professor, Dept. of Agricultural and Resource Economics, Univ. of California, Davis, CA 95616. E-mail: howitt@primal.ucdavis.edu 6 Associate Cooperative Extension Specialist, Dept. of Land, Air, and Water Resources, Univ. of California, Davis, CA 95616. E-mail: ThHarter@ucdavis.edu 7 Consultant, Western Resource Economics. 8 Consultant, Fugro West, 3738 Ruffin Road, San Diego, CA 92123. E-mail: nrudd@fugro.com 9 Senior Economist, Northern Economics Inc., 1801 Roeder Ave., Bellingham, WA 98225-2257. Note. Discussion open until April 1, 2007. Separate discussions must be submitted for individual papers. To extend the closing date by one month, a written request must be filed with the ASCE Managing Editor. The manuscript for this paper was submitted for review and possible publication on September 30, 2003; approved on October 21, 2005. This paper is part of the Journal of Water Resources Planning and Manage- ment, Vol. 132, No. 6, November 1, 2006. ©ASCE, ISSN 0733-9496/ 2006/6-468–479/$25.00. 468 / JOURNAL OF WATER RESOURCES PLANNING AND MANAGEMENT © ASCE / NOVEMBER/DECEMBER 2006