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Question 3. Efficient Surface Water Allocation: Drought (20 points) Continuing from Questions 1 and 2, now assume that the system has two possible levels of
Question 3. Efficient Surface Water Allocation: Drought (20 points) Continuing from Questions 1 and 2, now assume that the system has two possible levels of supply in a given year: 1. Normal conditions where and that the annual supply of surface water is the basin is S = 200; and 2. Drought conditions where the supply of water in the basin g = 100. a. Consider a proportional sharing-rule that guarantees that M- and A-users get their efficient allocation of water in normal years, i.e., that water in the basin is allocated in normal years such that M- and A-users split the available water evenly (QM = 0A: 100). Suppose that this proportional sharing-rule also applies in drought years. What the total the net benefits from water use for M- and A-users under this proportional sharing rule in a drought year? (10 points) b. Suppose that instead of a proportional sharing rule, water in the basin is allocated according to the Prior Appropriations Doctrine. Suppose that M-users have the senior rights to 100 acre feet of water per year and the A-users have junior rights to 100 acre feet of water per year. What E the total the net benefits from water use for M- and A-users in a drought year under the Prior Appropriations Doctrine when M-users have the senior water rights? How do the total net benefits from water use in the drought year under Prior Appropriations compare to the total net benefits under proportional-sharing calculated in part (a)? (10 points)
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