Theme Overview: The Changing Nature of Agricultural Water Allocation

Resource /Energy Economics and Policy,

MULTIPERIOD OPTIMIZATION: DYNAMIC PROGRAMMING VS. OPTIMAL CONTROL: DISCUSSION

Research Methods/ Statistical Methods,

DROUGHT, STRIFE, AND INSTITUTIONAL CHANGE

Institutional and Behavioral Economics, Risk and Uncertainty,

Species Conservation on a Working Landscape: The Joint Production of Wildlife and Crops in the Yolo Bypass Floodplain

Replaced with revised version of paper 07/19/11.Crop Production/Industries, Resource /Energy Economics and Policy,

Income Distributional Effects of Using Market-Based Instruments for Managing Common Property Resources

In the face of growing management problems and conflicts over increasing demands and dwindling or increasingly variable supplies of surface and groundwater, the need for revising the conventional water resource allocation methods has been increasingly felt among natural resource managers and policy makers. For the past 30 years economists have advocated for the application of various types of market-based instruments (MBIs) as an efficient means of effecting the re-allocation water resources among competing uses. While MBIs have been implemented in several countries, they have continued to encounter strong socio-political opposition, due to the impacts imposed on third-parties during transfers and re-allocations, as well as the distributional effects across different types of water users. Despite the demonstrable efficiency gains of MBIs, the resulting equity or distributional effects of MBI-driven re-allocations can be of equal or greater importance to policy-makers and the constituents that they serve. At the same time, the realized gains in economic efficiency from the application of MBIs depend heavily on the heterogeneity of the agents they are targeted towards, as well as the degree of information asymmetry that the regulator faces. In this paper, we use a simple theoretical framework to show the trade-offs between efficiency and equity that might arise from the application of MBIs to a heterogenous population of agents drawing non-cooperatively from a natural resource pool. Using the idealized centralized planner as a benchmark of dynamic, allocative efficiency, we compare the realized efficiency gains that can be realized by alternative policy instruments and the resulting impacts on distributional equity, in terms of the cumulative net benefits over time. Using the specific example of groundwater and the empirical setting of Southern California, we are able to highlight the trade-offs between efficiency and equity that might exist among alternative policy instruments, and how MBIs perform with respect to those dual criteria. We find that under agent heterogeneity, there are asymmetric gains in efficiency when the centralized planner allocations are constrained by equity considerations. Through such results, this paper demonstrates the importance of considering both efficiency gains and the minimization of disparities in distributional inequity, when designing policy instruments that create winners and losers with potentially serious socio-political ramifications.Resource /Energy Economics and Policy,

Spatial Disaggregation of Agricultural Production Data

In this paper we develop a dynamic data-consistent way for estimating agricultural land use choices at a disaggregate level (district-level), using more aggregate data (regional-level). The disaggregation procedure requires two steps. The first step consists in specifying and estimating a dynamic model of land use at the regional level. In the second step, we disaggregate outcomes of the aggregate model using maximum entropy (ME). The ME disaggregation procedure is applied to a sample of California data. The sample includes 6 districts located in Central Valley and 8 possible crops, namely: Alfalfa, Cotton, Field, Grain, Melons, Tomatoes, Vegetables and Subtropical. The disaggregation procedure enables the recovery of land use at the district-level with an out-sample prediction error of 16%. This result shows that the micro behavior, inferred from aggregate data with our disaggregation approach, seems to be consistent with observed behavior.Disaggregation, Bayesian method, Maximum entropy, Land use, Production Economics, C11, C44, Q12,

RECONSTRUCTING DISAGGREGATE PRODUCTION FUNCTIONS

This paper demonstrates a method for reconstructing flexible form production functions using minimal disaggregated data sets. The policy focus of our approach puts emphasis on the ability of the model to reproduce the existing production system and predict the disaggregate outcomes of policy changes. We combine Positive Mathematical Programming (PMP) with Generalized Maximum Entropy (GME) estimation to capture the individual heterogeneity of the local production environment, and allow the reconstructed production function to precisely replicate the input usage and outputs produced in the base year. Since we can generate demand, supply and substitution elasticities from the reconstructed model we can represent a wide range of policy responses. The empirical application used in this paper is a production model of California's irrigated crop sector that was constructed to measure the economic effect of environmental policy changes to irrigation water supplies, as part of a joint State and Federal program termed CalFed. We demonstrate that the disaggregate regional models give greater predictive precision, when compared with the model reconstructed on the aggregate data, and that they show a significant variation in the calculated regional elasticities of input demand and output response. From this, we conclude that any gains from aggregation - namely the reduction of small sample bias of the parameter estimates - would be swamped by the distortion of production response to policy changes, given the heterogeneity of the regions and the resultant bias.Production Economics,

THE COST OF THE KYOTO PROTOCOL TO U.S. CROP PRODUCTION: MEASURING CROP PRICE, REGIONAL ACREAGE, WELFARE, AND INPUT SUBSTITUTION EFFECTS

This study analyzes the impact of implementing carbon permit trading considered under the Kyoto Protocol, and the subsequent expected increase in energy and resource prices on U.S. crop production. The focus is on input substitution, net farm income, regional crop acreage, and crop prices. The analysis is carried out with a calibrated mathematical programming model which covers the major crops produced in the 48 contiguous states on a regional basis. The model accounts for both the variable inputs and the allocatable inputs of land and irrigation water, and it permits input substitution when farmers are faced with external shocks. The results suggest that when energy prices increase, the net cost to the crop-producing sector depends on the farmerÂ’'s ability to substitute crop inputs and the elasticity of demand for the crops. The impacts of carbon tax cost increases differ significantly among crops and regions. Overall, crop acreage and output decrease, total net revenues increase in most regions, and consumer surplus declines.Environmental Economics and Policy,

Estimating Disaggregate Production Functions: An Application to Northern Mexico

This paper demonstrates a robust method for achieving disaggregation in the estimation of flexible-form farm-level multi-input production functions using minimally-specified data sets. Since our ultimate goal is to address important questions related to the distributional effects of policy changes, we place emphasis on the ability of the model to reproduce the characteristics of the existing production system and to predict the outcomes of these changes at a high level of disaggregation. Achieving this requires the use of farm-level models that are estimated across a wide spectrum of sizes and types, which is often difficult to do with traditional econometric methods, due to limitations of data. The approach to estimating flexible-form production functions used in this paper overcomes these limitations, and also avoids the problems that frequently hinder the application of budget-based representative farm models to these type of analyses namely, that of poor calibration to observed behavior. In our estimation procedure, we use a two-stage approach that first generates a set of observation-specific shadow values for incompletely priced inputs, such as irrigation water or family labor, which are used in the second stage, along with the nominal input prices, to produce estimates of crop-specific production functions using Generalized Maximum Entropy (GME) methods. These functions are able to capture the individual heterogeneity of the local production environment, while still allowing the production function to replicate the input usage and outputs produced in the sample data. Since we are able to generate demand, supply, and substitution elasticities, a wide range of policy responses can be modeled. Our paper demonstrates this methodology through an empirical application to Mexico, drawing from a small set of cross-section data collected in the northern Rio Bravo regions. The estimates show that there is considerable heterogeneity in the behavioral response of farmer households of different sizes, both in terms of the returns to scale, as well as in the elasticities of substitution and derived demands for water. Compared to the aggregate-level estimation, we obtain much more accurate and informative policy response behavior, when shocks are imposed on the model.Research Methods/ Statistical Methods,

ESTIMATION OF SUPPLY AND DEMAND ELASTICITIES OF CALIFORNIA COMMODITIES

The primary purpose of this paper is to provide updated estimates of domestic own-price, cross-price and income elasticities of demand and estimated price elasticities of supply for various California commodities. Flexible functional forms including the Box-Cox specification and the nonlinear almost ideal demand system are estimated and bootstrap standard errors obtained. Partial adjustment models are used to model the supply side. These models provide good approximations in which to obtain elasticity estimates. The six commodities selected represent some of the highest valued crops in California. The commodities are: almonds, walnuts, alfalfa, cotton, rice, and tomatoes (fresh and processed). All of the estimated own-price demand elasticities are inelastic and, in general, the income elasticities are all less than one. On the supply side, all the short-run price elasticities are inelastic. The long-run price elasticities are all greater than their short-run counterparts. The long-run price supply elasticities for cotton, almonds, and alfalfa are elastic, i.e., greater than one. Policy makers can use these estimates to measure the changes in welfare of consumers and producers with respect to changes in policies and economic variables.Consumer Economics: Empirical Analysis, Agricultural Markets and Marketing, Agriculture: Aggregate Supply and Demand Analysis, Prices, Agribusiness, Agricultural and Food Policy, Consumer/Household Economics, Crop Production/Industries, Demand and Price Analysis, Marketing, D120, Q130, Q110,