Estimating the Value of Groundwater in Irrigation

In recent years there has been increasing regulation of agricultural water use in order to reduce transboundary and environmental water conflicts. Effective policy analysis needs to have tools to estimate correctly the value of irrigation water. Irrigating land increases crop yields and this higher profitability should be capitalized into the sales price of the land. For irrigation that depends on surface water rights, studies have found this to be the case (Xu et al. 1993, Faux and Perry 1999). However, studies that have analyzed the value of groundwater in irrigation have found mixed results. Hartman and Taylor (1989) and Sunderland, Libbin and Torell (1987) find that groundwater irrigation has no significant effect on land prices; Torrell et al. (1990) find a significant positive effect of groundwater in irrigation. One explanation is that in areas where groundwater use is not restricted there is the option to implement irrigation in the future and thus the presence of groundwater irrigation may not have a large effect on the sales price. Consistent with this idea of option value, Petrie and Taylor (2007) look at differences in land values before and after a moratorium on water-use permits and find that permits add value to agricultural land only after the restriction is in place. An additional econometric issue is that the decision to irrigate is not random but is based on the underlying characteristics of the land. Thus hedonic estimates of the value of irrigation rights may be biased. In this paper we analyze the value of groundwater in an area with pumping restrictions using both a standard hedonic model and a propensity score matching model. We use a geospatial database from Chase County, Nebraska that includes arms length sales, tax assessor’s data, hydrologic and climatic variables. We find that per acre values of groundwater irrigation are 15 percent higher using the propensity score method compared to the hedonic model. This result is driven in large part by the preferential adoption of irrigation on intermediate quality land. An important implication for policy is that hedonic estimates of the value of groundwater in irrigation may underestimate the cost, to both farmers and the government, of future water use reductions. Our study area is part of the Republican River Basin in Nebraska. The Basin has been the source of litigation between Colorado, Kansas and Nebraska. In 2002, the Supreme Court decided that groundwater pumping by Nebraska caused reduced instream flows in Kansas. As a result, groundwater management districts in Nebraska were forced to introduce a variety of restrictions: moratoria on new wells (introduced in 1999), metering of existing ones, and volumetric pumping restrictions. The data for this research include all agricultural parcels in Chase County, Nebraska that sold between 2000 and 2008, obtained from the Chase County tax assessor’s website. Each parcel contains sale prices along with the new ownership and sales date. In addition, the presence of outbuildings and the square footage and age of residences are included. Each observation also includes the distribution of agricultural land (irrigated, dryland or grassland) and four soil quality types in each type of land, resulting in a total of twelve soil classes. We also assembled georeferenced data on estimated depth to water, the rate at which a well can pump water, precipitation and growing degree days. After excluding the non arms-length sales transactions, outliers where the sale price per acre was greater than $6,000, and parcels of less than four acres, 330 observations were left. In the first estimation, we use physical, geophysical, sales, and structure data to characterize the sales price. We estimate an Ordinary Least Squares Regression model in which the dependent variable is the sales price per acre regressed on the other variables. Consistent with Petrie and Taylor (2007), our results show that irrigated land sells for a higher price than equivalent dryland or grassland (ceteris paribus). For the period between 2000 and 2008, during which the well drilling moratorium was in place, we find that the price of irrigated land was about$712 per acre greater than that of non irrigated land. Second, we estimate a propensity score model which involves two steps. First, we estimate the probability of a parcel of land being irrigated using a probit model. An interesting result from the probit regression is that farmers are more likely to irrigate on lands that are of intermediate quality (Soil 2 and Soil 3), suggesting that irrigation is a land-quality augmenting technology. This result is similar to Lichtenberg’s (1989) analysis in the region, but unlike that paper our results suggest that irrigation is less likely on the lowest quality land. In the second step we match pairs of non irrigated and irrigated parcels that have the same probability of being irrigated and analyze whether there is a difference in the sales price. Results show that once again there is a positive and significant value associated with groundwater irrigation rights, but the difference is larger than the hedonic analysis at $839. This suggests that if selection into irrigation is not accounted for, the price of the land is undervalued by over 15 percent. These results have important policy implications in areas such as Nebraska where there is debate on how to reduce water use effectively. The results of our paper suggest that future reduction may be costlier than previous research suggests and that the standard hedonic method may not be best in estimating the value of water. Also, the reductions will be more expensive to both the government and farmer. In Nebraska, the government has tried to reduce water use by buying permits from farmers. There has been a lot of resistance to this and one explanation for this may be that the government is not offering enough compensation for the permits.groundwater, hedonics, propensity score matching, Environmental Economics and Policy,

Dynamic fluvial systems and gravel progradation in the Himalayan foreland

Although the large-scale stratigraphy of many terrestrial foreland basins is punctuated by major episodes of gravel progradation, the relationships of such facies to hinterland tectonism and climate change are often unclear. Structural reentrants provide windows into older and more proximal parts of the foreland than are usually exposed, and thus provide key insights to earlier phases of foreland evolution. Our magnetostratigraphic studies show that, although the major lithofacies preserved within the Himachal Pradesh structural reentrant in northwestern India resemble Neogene facies in Pakistan, they have a much greater temporal and spatial variability. From 11.5 to 7 Ma, major facies boundaries in Himachal Pradesh vary by as much as 2–3 m.y. across distances of 20–30 km and are controlled by the interference between a major southeastward-flowing axial river and a major southwestward-flow- ing transverse river. A thick but highly confined middle to late Miocene conglomerate facies includes the oldest extensive Siwalik conglomerates yet dated (10 Ma) and implies the development of significant erosional topography along the Main Boundary thrust prior to 11 Ma. Our studies document extensive syntectonic gravel progradation with conglomerates extending tens of kilometers into the undeformed foreland during a period of increased subsidence rate and within 1–2 m.y. of major thrust initiation. Overall, gravel progradation is modulated by the interplay among subsidence, sediment supply, and the proportion of gravels in rivers entering the foreland

Resilience, Uncertainty, and the Role of Economics in Ecosystem Management

Many natural systems have the potential to switch between alternative dynamic behaviors. We consider a system with two distinct equations of motion that are separated by a threshold value of the state variable. We show that utility maximization will give a decision making rule that is consistent with ecosystem-based management objectives that aim to reduce the probability that the system crosses the threshold. Moreover, we find that increasing uncertainty (both uncertainty embedded in the natural system and uncertainty of the decision maker about the location of the threshold) can lead to nonmonotonic changes in precaution. Although small increases in uncertainty may at first increase precaution, large enough increases in uncertainty will lead to a decrease in precaution.Resource /Energy Economics and Policy,

Supply Response of Commercial Fishermen and Implications for Management of Invasive Asian Carp

Resource /Energy Economics and Policy,

Defensive purchasing and motor-vehicle policy effectiveness

We present a theory of vehicle choice where utility depends on the vehicle choices made by other consumers. We use parameters from current transportation and public safety data to show that changes in motor vehicle policy may have unexpectedly large or non-existent effects on safety, fleet mix, and the environment.Public Economics,

MEASURING THE GAINS FROM MANAGEMENT OF SPATIALLY HETEROGENEOUS RESOURCES: THE CASE OF GROUNDWATER

We develop a model for the dynamic management of spatially heterogeneous resources with multiple users. We apply our model to the case of groundwater and show that contrary to the results of existing studies even when externalities are highly concentrated in space, significant efficiency gains are possible over competitive outcomes.Resource /Energy Economics and Policy,

Prices versus Quantities Reconsidered

In comparing second-best prices and quantities, studies assume that quantities bind with probability one. We present a more general and realistic model of second-best regulation where quantity instruments can bind with probability less than one. This additional flexibility of quantity instruments makes them much more efficient than previously realized.Research Methods/ Statistical Methods,

Agricultural Water Transfers in the Western United States

Irrigation for agricultural production represents the largest consumptive use of water in the western United States. Understanding the ways in which agricultural producers respond to physical and institutional water scarcity is therefore key to managing water risk. One of the important risk management tools available to agricultural producers is the ability to transfer water across space and time. Water transfers range from very informal handshake agreements between neighbors to very formal transfers of real property across large distances with mandatory state and federal reporting. Given the range of potential water transfer mechanisms, there are significant knowledge gaps on the variety, scale, and scope of agricultural water transfers. The goal of this report is to improve understanding of the state of water transfers between agricultural producers in the American West. It is intended for a broad range of practitioners including water district managers and board members, commodity groups, individual agricultural producers, policymakers, researchers, and others interested in gaining insights into how the agricultural sector currently reallocates water, and challenges and opportunities for improving water reallocation. This report was informed by interviews with dozens of water practitioners. Common themes emerging from the interviews include: • Water transfers between agricultural producers are widespread in the American West, implying that these transfers provide value and risk management • Most water transfers seem to be informal and occur at a local, within-water district level • Data collection about transfers is limited and the terminology used is localized and variable: often water transfer participants do not self-identify as undertaking water transfers • Well-defined property rights with strong enforcement encourage water transfer activity In addition to synthesizing key practices and results, the report provides examples of many different kinds of water transfers and supporting mechanisms that are in operation across the western United States. A key objective of this report is to improve understanding of the variety of informal and formal water transfers occurring for agricultural production, to describe the transfer processes and considerations for managers and decision makers considering new transfer programs, and to discuss challenges and opportunities both to scale transfers and to improve data collection. Water transfers between agricultural producers are widespread in the Western United States, implying that such transfers provide both value and risk management to voluntary participants. Most water transfers seem to be informal and occur at a local, within-water district level. Current data collection about transfers is limited and some common types of transfers generate no recordkeeping at all. Moreover, the terminology used for transfers is localized and variable: often water transfer participants do not self-identify as undertaking water transfers. The analysis highlighted the potential benefit of sharing clear information about potential transfer types and their applicability, as well as the need to emphasize the role of well-defined property rights with strong enforcement in building trust for water transfer activities

Consumer Surplus Estimates and the Source of Regression Error

Contrary to widely held belief, we show that the source of regression error does not matter when calculating Marshallian surplus. A misspecified demand curve, not the assumed source of regression error, leads to differences in estimates of consumer surplus.Regression Error, Marshallian Surplus, Welfare Analysis, Consumer/Household Economics, D60, C24, Q51,

Dynamic fluvial systems and gravel progradation in the Himalayan foreland

Although the large-scale stratigraphy of many terrestrial foreland basins is punctuated by major episodes of gravel progradation, the relationships of such facies to hinterland tectonism and climate change are often unclear. Structural reentrants provide windows into older and more proximal parts of the foreland than are usually exposed, and thus provide key insights to earlier phases of foreland evolution. Our magnetostratigraphic studies show that, although the major lithofacies preserved within the Himachal Pradesh structural reentrant in northwestern India resemble Neogene facies in Pakistan, they have a much greater temporal and spatial variability. From 11.5 to 7 Ma, major facies boundaries in Himachal Pradesh vary by as much as 2–3 m.y. across distances of 20–30 km and are controlled by the interference between a major southeastward-flowing axial river and a major southwestward-flow- ing transverse river. A thick but highly confined middle to late Miocene conglomerate facies includes the oldest extensive Siwalik conglomerates yet dated (10 Ma) and implies the development of significant erosional topography along the Main Boundary thrust prior to 11 Ma. Our studies document extensive syntectonic gravel progradation with conglomerates extending tens of kilometers into the undeformed foreland during a period of increased subsidence rate and within 1–2 m.y. of major thrust initiation. Overall, gravel progradation is modulated by the interplay among subsidence, sediment supply, and the proportion of gravels in rivers entering the foreland