This paper discusses some of the challenges associated with hydroeconomic modelling. It focuses on the California Value-Integrated Network (CALVIN), a hydroeconomic optimization model of the California water system, and the Limited Foresight Netflow (LFN) model, a mathematical programming model that allocates water among 23 agricultural and urban demand locations in northern California. Without a history of market-based water prices, a hydroeconomic model is one of the few ways of deducing the value of water over the distribution of possible water realizations and consequently water's option value. Such a model can also suggest the physical and economic effects of infrastructural changes as well as the effects of institutional changes, such as the implementation of option markets. It is suggested that a self-calibrating model with limited foresight of future water supply conditions such as the LFN model of northern California is well suited to this task.

irrigation water, mathematical models, optimization, risk,simulation models, valuation, water allocation, water supply,California, USA, Pacific States of USA, Western States of USA, USA,North America, America, Developed Countries, OECD Countries, UnitedStates of America, water supplies, Agricultural Economics (EE110),Natural Resource Economics (EE115) (New March 2000), Soil WaterManagement (Irrigation and Drainage) (JJ800) (Revised June 2002)[formerly Soil Water Management], Water Resources (PP200), Mathematicsand Statistics (ZZ100)

• Journal Article

• Ag Water Conservation Policy
• Ag Water Resource Economics