Although water is considered a renewable resource, there is only a fixed amount of water available. No additional water can be made, and we cannot easily control how fast water is recycled or in what form it will appear and where. With expected growth in the world’s population and economy, the same amount of water must supply more needs. Taking into account climate change projections and water-related environmental stresses, even less water might be available for human uses. People will need to decide how to serve a multitude of water needs. This dissertation uses the Southern Nevada Water Authority’s (SNWA) Groundwater Development Project to investigate how water policy designs handle the challenges of meeting urban and rural as well as human and ecological water needs when allocating scarce water supplies. The Southern Nevada Water Authority (SNWA) plans to build a pipeline to transfer groundwater from five rural basins in northeastern Nevada 300 miles south to the Las Vegas metropolitan area in Southern Nevada. SNWA has asked the Nevada State Engineer to approve its water right applications to develop and use groundwater from these rural basins. One of the basins, Snake Valley, straddles the border between Nevada and Utah. An interstate agreement allocating the groundwater between the two states is required before the State Engineer can approve water rights that would be diverted from Snake Valley. We found that policy debates and people’s rationales for how water should be allocated revolved around disagreements over beneficial use. In addition, water agreements need to be designed so that the risks from hydrologic uncertainties and impacts from other users are also apportioned clearly and equitably. Policy designs are purposefully crafted and have enormous impact, yet analysis of the actual contents of policies and their societal impacts has not received adequate attention within the policy sciences. The significance of this research is that it focuses on the foundational principles and rules for the allocation of scarce water resources that must necessarily balance urban and rural interests as well as human and environmental needs.