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Groundwater and Crop Choice in the Short and Long Run

Author

Listed:
  • Fiona Burlig
  • Louis Preonas
  • Matt Woerman

Abstract

How do agents respond to policy when investments have high upfront costs and lasting payoffs? We estimate farmers’ short- and long-run responses to changes in groundwater pumping costs in California, one of the world’s most valuable agricultural regions, where perennial crops with these investment dynamics are prevalent. We leverage quasi-experimental variation in groundwater costs driven by regulated electricity tariffs to estimate a dynamic discrete choice model of land use with state dependence and forward-looking farmers. Farmers’ short-run elasticity of groundwater demand is −0.72, but temporary cost shocks do not induce crop switching. In contrast, their long-run elasticity is −0.48, driven by a shift away from unsustainable short-run coping strategies and towards meaningful reductions in water-intensive perennial cropping and increased fallowing. California’s flagship groundwater sustainability targets will require a 47% tax in regulated areas on average, which would lower perennial acreage by 10% and increase fallowing by 18%.

Suggested Citation

  • Fiona Burlig & Louis Preonas & Matt Woerman, 2021. "Groundwater and Crop Choice in the Short and Long Run," NBER Working Papers 28706, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28706
    Note: EEE
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    Cited by:

    1. Browne, Oliver R. & Ji, Xinde James, 2023. "The Economic Value of Clarifying Property Rights: Evidence from Water in Idaho’s Snake River Basin," Journal of Environmental Economics and Management, Elsevier, vol. 119(C).
    2. Harris, Lena, 2024. "Farmer response to policy induced water reductions: Evidence from the Colorado River," Journal of Environmental Economics and Management, Elsevier, vol. 125(C).
    3. Jan Wrana & Wojciech Struzik & Bartłomiej Kwiatkowski & Piotr Gleń, 2022. "Release of Energy from Groundwater/with Reduction in CO 2 Emissions of More Than 50% from HVAC in the Extension and Revitalization of the Former Palace of the Sobieski Family in Lublin," Energies, MDPI, vol. 15(18), pages 1-11, September.
    4. Winston P. Hovekamp & Katherine R. H. Wagner, 2023. "Efficient Adaptation to Flood Risk," CESifo Working Paper Series 10243, CESifo.

    More about this item

    JEL classification:

    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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