Water is an essential ingredient to growing communities, healthy ecosystems and vibrant industries. Due to increases in population, a gap between water demand for municipal and industrial (M&I) use and available water supplies is forecasted for many areas throughout the western U.S. Through the 1970's, water supply management in the West consisted of increasing water supply through building infrastructure such as dams, reservoirs and canals, but since that time, due to the high cost of new

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... y development, the focus has shifted to policies aimed at more effective management and reallocation of existing supplies (Chong and Sunding, 2006) . Moving forward, increased demand for water will likely be met by a combination of three means: voluntary water transfers (typically from agriculture to municipal users), water conservation, and developing new supplies/expanding existing supplies. Essentially viewing water allocation as a portfolio problem, a systematic look at performance measures (economic returns, equity, efficiency) and constraints (physical, political, economic) will contribute to better decision-making and analysis of likely outcomes and welfare changes. Accordingly, this dissertation explores impacts to M&I users, agricultural producers, and rural communities from the different means by which future demand will be met. While economists have long championed the use of water markets as a means of reallocating water from low-to-high valued uses, relatively little is known regarding how transaction costs impact the distributional iii outcomes of water markets and how the portfolio of polices utilized by utilities to meet future demands, influenced by transaction costs, impacts water market activity and outcomes. The first objective of this dissertation is to explore how transaction costs impact the functioning of water markets (economic returns, and variance across agents since equity and distributional implications may be of interest). Specifically, I consider how the presence of physical and institutional transaction costs impact producer profits, total revenues, and municipal costs for a river basin in Colorado in the presence of population growth. Contrary to previous modeling approaches, I model multiple, integrated, regional water markets consisting of agents who are heterogeneous, both in terms of objectives and situation. The multi-objective framework adopted here is similar in concept to Kuhn & Britz (2012) and Britz, Ferris, and Kuhn (2013) , but differs by including varying objective functions based on user type as well as including two types of transaction costs (infrastructure and legal), leading to different welfare outcomes due to a more accurate characterization of agent and market behavior. Although transaction costs have been included in previous water market models as a constant marginal cost (e.g., Howitt et al., 2012; Zhu et al., 2015) , the novel way in which I include transaction costs is by allowing them to spatially vary, separately estimating the impacts of spatially and non-spatially uniform transaction costs. Specifically, for regional "pools" of water (e.g., ditch company) where agents face institutional transaction costs (assumed to be constant across regions) when trading within a pool, but face both institutional and physical transaction costs (assumed to vary based on the location of the buyer and seller) when trading across pools. Results from the model demonstrate the importance of including heterogeneous transaction costs into a water market model as these costs have a large impact on the welfare outcomes associated with water markets, both in terms of overall efficiency and distributional