Water policy guidelines: A comprehensive approach

We study water management in the context of a prototypical water economy containing the main water sources and user sectors. A water policy consists of water allocation from each source to each user sector at each point of time as well as the capital investments needed to carry out these allocations. We show that the optimal policy brings the water capital stocks (infrastructure and equipment) to well-specified turnpike processes as rapidly as possible and evolves along these turnpikes thereafter, eventually converging to a unique steady state. Implications for water pricing, as well as for the timing and extent of recycling and desalination activities, are discussed.