Integrating Water Management Instruments to Reconcile a Hydro‐Economic Water Allocation Strategy With Other Water Preferences

Increasing scarcity and pollution has called for changes in water policies, which should reflect society's preferences toward water use, development, and the environment. Water management is still limited in incorporating changing policies and in deriving directives to implement water instruments under long‐term planning. Some examples are water charges that do not reflect watershed externalities and water permits lacking future vision of allocation. Hydro‐economic modeling has explored trade‐offs of water allocation and improved water operations but still does not address instruments' integration. This paper proposes a modeling approach that identifies how to apply water management instruments integrated with each other to deliver a water allocation strategy reconciled with economic development projections and changing water use preferences. This improves our understanding on adjusting the implementation of water management instruments considering future outcomes and trade‐offs. The methodology combines discrete dynamic programming to determine increments in water permits, multiobjective linear programming to generate a Pareto set to model users' water preferences, and nonlinear programming to allocate water permits over different river reaches subject to water quality targets. The reconciliation allowed to identify sustainable water allocation strategies supported by a watershed, and instruments' integration to make it feasible. Strategies imposing limited water permits to economic users and watershed regions indicated where (and when) water conservation programs should be applied, along with quantitative targets (how much). The economic trade‐offs identified reference values for economic instruments to compensate the externalities. Finally, less strict water quality targets did not result in higher economic returns. Key Points Water management is limited in incorporating changing policies and in deriving directives to integrate water instruments Water allocation depends on exogenous development drivers, economic benefits and evolving society's perception of water preferences Issuing water permits to fulfill all economic demands may not yield the highest economic benefit, if it lacks integration with other water management instruments