How much do societies adapt to environmental change? I provide evidence on this question by studying surface water, a resource that is projected to become scarcer in much of the world yet is critical to sectors such as irrigated agriculture. To identify adaptation, I compare the long-run and short-run effects of water scarcity on agriculture, which I estimate using institutional variation in water allocation in California. First, I estimate long-run effects using spatial discontinuities in average water supplies at the borders between neighboring water utilities, where farmland is otherwise similar. Then, I estimate short-run effects using weather-driven fluctuations in water supplies from year to year. Using high-resolution satellite data on land use, I find that surface water scarcity reduces crop area and crop revenue (as predicted by crop choices) in both the short run and the long run. Differing crop substitution patterns imply that farmers adapt over the long run, but adaptation does not mitigate the impacts of water scarcity on agricultural output. Absent new investments or policy changes, projected declines in surface water supplies are likely to notably reduce the land area and output of agriculture.

Water markets may help societies adapt to rising water scarcity and variability, but their setup costs can be substantial and their benefits uncertain. I estimate the gains available from strengthening the wholesale surface water market in California, where conveyance infrastructure is well-developed yet transaction volume remains low. To do so, I develop a new empirical framework to analyze welfare in water markets that uses transactions data. First, I recover marginal valuations of water in the presence of unobserved transaction costs, by using particular price comparisons to find the incidence of both known and unknown cost determinants. Second, I estimate demand using yearly water endowments, which have rich variation driven by weather and amplified by historical rules. Then, I combine this demand model with a hydrological network model to simulate counterfactual outcomes. I find that efficient trading across regions and sectors would achieve benefits of only $86 to $278 million per year, without accounting for any environmental costs. These results suggest that promoting large-scale water markets may not achieve large gains without also reforming the policies and institutions that govern local water allocation.

Industrial water pollution is high in many developing countries, but researchers and regulators have paid it less attention than air and domestic water pollution. We estimate the costs of industrial water pollution to agriculture in India, focusing on 71 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 in fact coincide with a large, discontinuous rise in pollutant concentrations in the nearest river. Then, we find that remote sensing measures of crop growth are 2.6 percent lower in villages downstream of polluting sites, relative to villages immediately upstream of the same site in the same year. In terms of agricultural production, this estimate roughly translates to a 1 percent negative decline in crop yields. The effect appears to be driven by reduced yields per cropped land area and not factor reallocation. These results suggest that damages to agriculture may not represent a major cost of water pollution, though many other potential social costs remain unquantified.

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 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.


"Measuring Demand for Groundwater Irrigation: Experimental Evidence from Conservation Payments" (with Ariel Zucker) (Study Design)

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.