ful depending on the decision and its context. For example, water managers in the western United States typically base streamflow forecasts on existing hydrologic conditions (e.g., current water content of the snowpack) and historic records of high, normal, and low precipitation during the remainder of the forecast period. This procedure gives managers a rough indication of the upper and lower bounds and most likely inflow conditions for the system. Climate forecasts can improve decisions based on this procedure if they provide more accurate expectations about rainfall at the watershed level. However, the value of such forecasts is likely to hinge on whether adequate representations of forecast accuracy and uncertainty are provided. Forecasts may also help water project managers inform irrigators, whose water entitlements are calculated as a share of the available supply, of impending shortfalls early in the season so they can make adjustments. Although such advice may be helpful, if it is based on a poor-quality forecast or on unskilled interpretation of the forecast, water users may take inappropriate actions, such as fallowing unnecessarily or incurring unneeded expenses for wells or water purchases to protect perennial crops. An example involving such outcomes is discussed in the next section.
The usefulness of forecasts also depends on the state of preexisting water management institutions. For example, it may be supposed that the prior appropriation system in the western United States is rigid, leaving water users with little discretion to make adjustments that take forecast information into account. However, by providing a clear link between water availability and use rights, the senior priority rule allows water users and managers to calculate the probability of obtaining water under any particular right given the predicted climatic conditions and to make appropriate investments or water purchases to achieve desired levels of reliability (Hutchins, 1971; Trelease, 1977). Forecasts that give additional lead time might also allow more efficient adjustments by enabling irrigation districts and individual irrigators to plan more effectively for fallowing, crop switching, or other methods of water use reduction and for improved operation of water banks.
The insurance industry and its clients might benefit from forecasts that accurately estimate the probabilities of hurricanes, floods, droughts, or wildfires striking policy holders in particular areas. For example, insurers and reinsurers could calculate premiums based on risk rather than history. However, this would be an improvement only if available predictions are sufficiently accurate and if insurance regulators allow the change. The usefulness of forecasts to insurers is also constrained by difficulties transforming the kinds of information forecasts provide into forms used in insurance firms' procedures of risk analysis (Golnaraghi, 1997). Crop insurers might use climate forecasts to decide how much