Optimal Allocation of Stochastic Water Supply

Abstract

The optimal allocation of a stochastic water supply has proved to be an extremely complex problem because of the effects of risk on certain high-value production alternatives involving high investments and deferred returns, e.g., perennial crops requiring 5 to 10 years to reach full production. It is shown that by allocating the degree of assurance of supply rather than water itself as a primary resource, followed by water allocation within each level of assurance, the allocation becomes quite tractable.