Abstract
This paper constructs a model for determining the optimal capacities of water projects, including, but not limited to, diversion dams, flood-control dams, water-transfer projects, and rainwater-harvesting systems. The model helps us analyze the impacts of institutional, environmental, and technological changes on the capacity choices of water projects. The analysis identifies the conditions under which water reforms, flood damages, and climate change could lead to larger optimal water-project capacities. We also systematically analyze the relation between water-project capacities and water-conservation technologies (e.g., drip irrigation) and identify the conditions under which they are complements. The paper implies that the design of water projects should not be separated from the institutional, environmental, and technological conditions both upstream and downstream.
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