This paper studies the long-run effects of surface water scarcity in irrigated agriculture and the extent of adaptation. First, I estimate the long-run effects of persistent differences in water supplies using spatial discontinuities between neighboring water utilities in California. Then, I measure adaptation by comparing these long-run effects with the short-run effects of weather-driven fluctuations in annual water supplies. Water scarcity reduces crop area and crop revenue (as predicted by crop choice) in both the short run and the long run. Differing crop substitution patterns reveal that farmers adapt but in ways that do not offset the lost production.
"What Holds Back Water Markets? Transaction Costs and the Gains from Trade"
(Revise and resubmit, Review of Economics and Statistics)
This paper estimates the potential benefits of reducing transaction costs in California’s wholesale surface water market. I develop an empirical framework to analyze welfare in water markets that uses transactions data, inferring preferences of water utilities from their behavior in the existing market. I separate observed prices into true valuations and transaction costs, estimate demand elasticities, and simulate a market without transaction costs. Gains from efficient trading across regions and sectors are less than 2% of statewide water expenditures. Reducing transaction costs may not achieve large gains without also reforming the policies and institutions that govern local water allocation.
"Industrial Water Pollution and Agricultural Production in India" with Anshuman Tiwari
(Revise and resubmit, Journal of the Association of Environmental and Resource Economists)
Industrial water pollution is high in many developing countries but often receives less attention than air and domestic water pollution. We estimate the costs of industrial water pollution to agriculture in India, focusing on 48 industrial sites identified by the central government as “severely polluted.” We exploit the spatial discontinuity in pollution concentrations that these sites generate along a river. First, we show that these sites do coincide with a large, sudden rise in pollutant concentrations in the nearest river. Then, we find that a remote sensing measure of crop yields is no lower in villages immediately downstream of polluting sites, relative to villages upstream of the same site in the same year. Downstream farmers switch irrigation sources from rivers and canals to wells in some specifications, suggesting costly input substitution may avert pollution damages. Damages to agriculture may not represent a major cost of water pollution, though many other social costs are not yet quantified.
Adaptation actions taken to mitigate climate damages may impose negative externalities on vulnerable populations. We study this in the context of groundwater in California and evaluate the effects of annual fluctuations in weather and surface water supplies on agricultural well construction and access to drinking water. Using the population of geocoded wells, we show that farmers respond to extreme heat and surface water scarcity through agricultural well construction. This mitigating behavior by agricultural users imposes costs, as extreme heat and surface water scarcity reduce local groundwater levels and lead to domestic well failures. Our findings demonstrate that an unintended cost of agricultural groundwater extraction is access to drinking water supplies in disadvantaged communities.
We study the regulation of open-access resources under long implementation horizons. Our theoretical model clarifies when and how future regulation creates either an anticipatory decline or perverse incentives to accelerate extraction (a “Green Paradox”). Then, we evaluate the early effects of a major groundwater regulation in California that does not yet bind. We assemble new data and compare within pairs of neighboring agencies that face varying restrictions on extraction. Differences in future regulation do not affect measures of water-intensive investments or groundwater extraction today. The absence of anticipatory response in either direction can be explained by high private discount rates.
"The Tradeoff Between Wildlife Conservation and Renewable Energy: Evidence from Golden Eagles and Wind Turbines" with Brock O'Brien (former MSU master's student)
Renewable energy development can reduce carbon emissions but can also harm wildlife, posing a tradeoff between local conservation and global climate goals. This paper estimates the effect of protections for golden eagles on wind energy development in the central United States. Federal enforcement of the Bald and Golden Eagle Protection Act sharply increased after a key court decision in 2013, increasing potential liability for wind developers in regions where golden eagles are common. We find that counties with high exposure to golden eagles slowed their wind energy development after 2013 relative to counties with few to no golden eagles. The forgone wind energy would have brought either $140 million in new electricity or $57 million in climate benefits. The quantifiable benefits from avoided eagle fatalities appear considerably lower. Our results suggest that current policy, at least at the margin, overvalues wildlife protection and undervalues green energy.
We estimate market power in California's surface water market. Market power may distort the potential welfare gains from water marketing. We use a Nash-Cournot model and derive a closed-form solution for the extent of market power in a typical water market setting. We then use this solution to estimate market power in a newly assembled dataset on California's water economy. We show that, under the assumptions of the Nash-Cournot model, market power in this thin market is limited.
"The Political Economy of Groundwater Management: Descriptive Evidence from California" with Ellen Bruno and Arthur Wardle. In: Ariel Dinar and Gary Libecap, ed., American Agriculture, Water Resources, and Climate Change, National Bureau of Economic Research, University of Chicago Press, forthcoming.
We use California's Sustainable Groundwater Management Act (SGMA), a statewide framework for local institutional change, to study the drivers of collective action and policy instrument choice over groundwater. We evaluate how SGMA altered the bargaining environment, place it in the context of the literature on the political economy of common-pool resource management, and characterize cross-sectional patterns in proposed demand management strategies. We find that by reducing the costs of collective action, SGMA brought about a significant departure from the prior status quo of open access, with a majority of basins now proposing incentive-based policies for groundwater management. Understanding the political economic forces that explain how, where, and why management is occurring is critical to the sustainability of groundwater-dependent agricultural regions worldwide.
SELECTED WORK IN PROGRESS
We measure the price response of demand for groundwater and electricity in irrigated agriculture in Gujarat, India, where both resources are scarce and largely unregulated. To do so, we install meters and introduce a new program of payments for voluntary conservation through a randomized controlled trial. First, we use the price variation introduced by this program to estimate the price elasticity of groundwater demand, a key parameter required for efficient regulation by any means. Then, we evaluate conservation payments as a policy tool in itself. We measure treatment effects on water and energy consumption, as well as spillovers, mechanisms, and economic impacts. We also assess the program’s cost-effectiveness, testing whether there is opportunity for mutual gain between irrigators and electric utilities. This project will provide the first experimental evidence on groundwater pricing and among the first on conservation payments. Pilot evidence confirms that conservation payments are feasible and is consistent with large effects on water use. Fieldwork is ongoing and is expected to be complete by late spring 2023.