This paper uses simple hydro-economic optimization to investigate a wide range of regional water system management options for northern Baja California, Mexico. Hydro-economic optimization models, even with parsimonious model formulations, enable investigation of promising water management portfolios for supplying water to agricultural, environmental and urban users. CALVIN, a generalized hydro-economic model, is used in a case study of Baja California. This drought-prone region faces significant challenges to supply water to agriculture and its fast growing border cities. Water management portfolios include water markets, wastewater reuse, seawater desalination and infrastructure expansions. Water markets provide the flexibility to meet future urban demands; however conveyance capacity limits their use. Wastewater reuse and conveyance expansions are economically promising. At current costs desalination is currently uneconomical for Baja California compared to other alternatives. Even simple hydro-economic models suggest ways to increase efficiency of water management in water scarce areas, and provide an economic basis for evaluating long-term water management solutions

Irrigated agriculture is the largest water user in many regions, and agricultural water use efficiency and consumption has been studied by several authors. This paper provides a framework and application of economic valuation of water for agriculture in three regions in northern Baja California, Mexico, namely Guadalupe, Maneadero and Mexicali Valleys. Positive mathematical programming (PMP), a deductive valuation technique, was the framework used for this estimation using water delivery data reported by the National Water Commission in Mexicali, production costs and cultivated area, production factors use from the Agriculture Ministry (SAGARPA); and other data from previous studies. Analysis of the results shows that marginal economic water value in Mexicali is at least 2.6 times the water price paid by farmers. Guadalupe and Maneadero with higher value agriculture, have higher marginal economic values of water than Mexicali, albeit closer to their water costs. Small shortages increase this economic value for farmers. Estimated price elasticities of irrigation water for each turn-out are inelastic for all regions and within the range of most previous studies. Policies aimed to reduce water consumption by decreasing current pumping subsidies are encouraged.