Risk-Aversion in Water Allocation Policies in Semi-Arid Regions

The critical role of water infrastructure systems in sustainable development and the limitations of supply management have increased the importance of demand management in meeting water needs. As an integral part of demand management in water-stressed regions, water allocation policies address the competition among user groups for scarce water resources. This paper presents a dynamic simulation model of a water system in semi-arid regions and analyses the effectiveness of allocation policies in meeting two objectives: satisfy current demands and preserve adequate supply for future use. Field data identified risk aversion in managers, as reflected in their allocation policies, as a potentially important influence on policy effectiveness. The model was tested with data and policies from the island of Cyprus. Sensitivity analyses reveal the important role of managerial expectations and responses to supply and demand in determining system performance. Analysis of water allocation policies revealed that the level of risk in policies shifts performance between satisfying current demands and protecting against future drought conditions. Potential changes by managers for improved performance and research needs are discussed. Copyright (C) 2008 John Wiley & Sons, Ltd.