Investments in water use efficiency and water storage capacity are two common approaches to tackling water scarcity and adapting to climate change. We show that they are not always substitutes. Efficiency improvement can increase the demand for storage capacity in two scenarios: (1) if it increases water demand; (2) if, as a result of re-optimization of water inventory control, it increases the probability that the storage capacity will be exhausted. We identify properties of water demand and productivity under which the two scenarios will happen, and illustrate the potential complementarity using an empirical example of the California State Water Project. The results are also applicable to choices among infrastructure investment, improved consumption efficiency, and conservation of other storable resources, for example, energy.
Xie, Y; Zilberman, D
Water Storage Capacity versus Water Use Efficiency: Substitutes or Complements?
Journal Of The Association Of Environmental And Resource Economists