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Missing markets: Evidence on agricultural groundwater demand from volumetric pricing

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  • Bruno, Ellen M.
  • Jessoe, Katrina

Abstract

Market-based instruments pose widely prescribed but rarely implemented tools to manage scarce water resources. We estimate the price elasticity of demand for agricultural groundwater in a water district with volumetric pricing and monthly well-level extraction data spanning 17 years. Demand is inelastic, with estimates ranging from −0.16 to −0.2. We apply this parameter to calculate the surplus change from the introduction of agricultural water pricing, and the prospective gains from water transfers between urban and agricultural users, with and without water supply curtailments. Relative to a water conservation mandate applied uniformly to all users, trading can substantially mitigate the costs of water scarcity.

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  • Bruno, Ellen M. & Jessoe, Katrina, 2021. "Missing markets: Evidence on agricultural groundwater demand from volumetric pricing," Journal of Public Economics, Elsevier, vol. 196(C).
    • Handle: RePEc:eee:pubeco:v:196:y:2021:i:c:s0047272721000104
    DOI: 10.1016/j.jpubeco.2021.104374
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    Cited by:

    1. Ellen M. Bruno & Nick Hagerty & Arthur R. Wardle, 2022. "The Political Economy of Groundwater Management: Descriptive Evidence from California," NBER Chapters, in: American Agriculture, Water Resources, and Climate Change, pages 343-365, National Bureau of Economic Research, Inc.
    2. Bruno, Ellen M. & Jessoe, Katrina K. & Hanemann, Michael, 2023. "The Dynamic Impacts of Pricing Groundwater," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt2mx8q1td, Department of Agricultural & Resource Economics, UC Berkeley.
    3. Hrozencik, Robert A. & Rouhi Rad, Mani & Uz, Dilek, 2023. "Electricity Demand by the Irrigated Sector in Response to Climatic Shocks," 2023 Annual Meeting, July 23-25, Washington D.C. 335469, Agricultural and Applied Economics Association.
    4. Kent F. Kovacs & Shelby Rider, 2022. "Estimating the Demand for In Situ Groundwater for Climate Resilience: The Case of the Mississippi River Alluvial Aquifer in Arkansas," NBER Chapters, in: American Agriculture, Water Resources, and Climate Change, pages 367-381, National Bureau of Economic Research, Inc.
    5. Bruno, Ellen Marie & Hagerty, Nick, 2023. "Anticipatory Effects of Regulation in Open Access," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt58n467v5, Department of Agricultural & Resource Economics, UC Berkeley.

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    More about this item

    Keywords

    Environmental regulation; Market-based approaches; Groundwater; Agriculture; Climate change;
    All these keywords.

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • 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
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • R52 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Land Use and Other Regulations

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