Using a conceptual model of a water supply firm, the necessary conditions for production and market efficiency are derived when renovated wastewater is considered as a potential water resource. The nature and extent of the supply augmentation due to recycled reuse is demonstrated using classical optimization techniques. Three stages of short-run supply corresponding to no recycling, partial recycled reuse and complete recycling of all reclaimable water are identified through appropriate Lagrangian Multipliers as well as graphical techniques. A mathematical programming model is structured to determine the optimal water resource allocation and pricing policy for Salt Lake County. By maximizing the sum of consumer and producer surplus (the difference between total willingness-to-pay and total cost) economically efficient equilibria are derived. The feasibility of recycled reuse for municipal purposes is examined in a planning context. The impact of higher water quality discharge standards on the attractiveness of water recycling option is studied. To ensure social acceptability of renovated wastewater for culinary purposes, blending restrictions are imposed, which stipulate that the amount of water for reuse be less than a fixed percentage of the water from other sources. The effect of such a constraint on the prices and water allocation are delineated. The hydrologic uncertainty in water supply is treated using stochastic programming techniques. Application of the concepts of single and joint chance-constrained programming are illustrated. The resulting changes in pricing and allocation policies are discussed.