How to solve our water crisis: a demo spot market for ground water
We show how to set up a physically and economically correct market for ground and surface water, using a modified version of MODMAN. MODMAN uses MODFLOW to produce a response matrix, which in turn becomes part of a linear program (LP). Greenwald showed how to use this mechanism to optimize various groundwater problems. We show how to use MODMAN to create an LP suitable for sustainable water trading. The LP includes required environmental conditions (e.g., head levels, flow to streams) as constraints, guaranteeing sustainability. The objective is to maximize consumer surplus. The objective coefficients are taken from users' bids to buy/sell from their water allocation, ensuring that no water users lose from the auction. Our approach implies an institutional arrangement for a water market in which a regional agency acts as a broker for a given catchment. Users bid for water through a web page, thus virtually eliminating transaction costs. The agency then solves the LP, which gives the optimal prices and allocations. We will demonstrate our software, and provide preliminary results using data from New Zealand's Marlborough district. We believe that this approach can help solve the world water crisis.