Motivating Water Conservation in Southern California through Allocation and Market Mechanisms

Our research examines the implications of water conservation on water allocation in Southern California. In this paper we consider two questions: How does the way water is currently allocated in Southern California encourage conservation? How could we develop a new allocation system to promote conservation, and how would the new system compare to the current system?
 
Our exploration of the current system revealed that under the status quo, agencies are better off increasing their water demand in advance of a drought in order to secure a larger share of supply during a shortage, rather than conserving water to prepare for when supplies are limited. Ironically, this behavior also increases the probability of depleting the available supply faster and further exacerbate the effects of the drought.