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Do Environmental Markets Improve on Open Access? Evidence from California Groundwater Rights

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Listed:
  • Andrew B. Ayres
  • Kyle C. Meng
  • Andrew J. Plantinga

Abstract

Environmental markets are widely prescribed as an alternative to open-access regimes for natural resources. We develop a model of dynamic groundwater extraction to demonstrate how a spatial regression discontinuity design that exploits a spatially-incomplete market for groundwater rights recovers a lower bound on the market’s net benefit. We apply this estimator to a major aquifer in water-scarce southern California and find that a groundwater market generated substantial net benefits, as capitalized in land values. Heterogeneity analyses point to gains arising in part from rights trading, enabling more efficient water use across sectors. Additional findings suggest the market increased groundwater levels.

Suggested Citation

  • Andrew B. Ayres & Kyle C. Meng & Andrew J. Plantinga, 2019. "Do Environmental Markets Improve on Open Access? Evidence from California Groundwater Rights," NBER Working Papers 26268, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:26268
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    References listed on IDEAS

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    1. Costello, Christopher & Quérou, Nicolas & Tomini, Agnes, 2015. "Partial enclosure of the commons," Journal of Public Economics, Elsevier, vol. 121(C), pages 69-78.
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    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • P14 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Property Rights
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies
    • 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

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