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The Dynamic Impacts of Pricing Groundwater

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  • Bruno, Ellen M.
  • Jessoe, Katrina K.
  • Hanemann, Michael

Abstract

This paper evaluates own-price dynamics in taxing environmental externalities. We exploit a natural experiment that exposed some firms to a large and persistent price increase for groundwater, a setting characterized by incomplete markets. Using five years of post-treatment data on farm-level water use, we find that water conservation doubles between the first and fifth year of the tax. Failure to account for dynamics in policies designed to manage groundwater will mischaracterize the price elasticity of demand and introduce efficiency costs.

Suggested Citation

  • 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.
    • Handle: RePEc:cdl:agrebk:qt2mx8q1td
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    Keywords

    Social and Behavioral Sciences; environmental regulation; market-based approaches; groundwater; agriculture; dynamic effects;
    All these keywords.

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