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<br />003154 <br /> <br />Page 53 <br /> <br />of the Colorado Basin states with respect to how the law of the river will be <br /> <br />interpreted, how it will be implemented, and whether and how it will be modified <br /> <br />in the future. <br /> <br />Water allocation within each of the Colorado Basin states generally occurs <br /> <br />pursuant to the doctrine of prior appropriation, as that doctrine is implemented <br /> <br />and embellished by the laws of each state. Federal and Indian reserved water <br /> <br />rights must be respected, as well, but the quantification of those reserved <br /> <br />rights, many of which are very senior, has barely begun. Furthermore, <br /> <br />increasing competition for limited water supplies creates pressure for <br /> <br />institutional change in order to facilitate transfers of water to the more <br /> <br />productive uses, and to increase the efficiency of use in all applications. <br /> <br />~ <br /> <br />In the light of these considerations, it seemed wise to include <br /> <br />investigations of the sensitivity of the primary research results (projected <br /> <br />patterns of use of increased flows) to possible changes in both interstate and <br /> <br />intrastate water allocation institutions. This was done first by modeling the <br /> <br />effects of the existing interstaCe water allocation institutions (the law of the <br /> <br />river) as a set of priorities for water uses at each of the virtual diversion <br /> <br />~ <br /> <br />points in the system. Then, the model was respecified using priorities which <br /> <br />corresponded to che marginal value of water in each of the identified uses, in <br /> <br />order to estimate the water use pattern which might be expected to emerge if the <br /> <br />law of the river were to be abandoned and free exchanges of water were to be <br /> <br />permitted between states, and if those free exchanges operated co transfer water <br /> <br />as market prices might dictate. <br /> <br />The marginal value of water is highest in municipal and industrial water <br /> <br />uses, in both the Upper and Lower Basins. It is lowest in agricultural <br /> <br />(irrigation) uses in both basins. Furthermore, the marginal values of water <br />