Groundwater and Crop Choice in the Short and Long Run
Natural resource management is a dynamic problem, whose analysis is complicated by agents choosing to respond differently in the short- and long-run. Long-run considerations are particularly salient in groundwater management. We estimate farmers’ responses to changes in groundwater pumping costs in California, one of the world’s most valuable agricultural regions, where perennial crops induce dynamics via upfront costs and long-lived payoffs. Leveraging quasi-experimental variation in groundwater costs driven by regulated electricity tariffs, we estimate a dynamic discrete choice model of land use with state dependence and forward-looking farmers. Farmers’ short-run elasticity of groundwater demand is −0.79, with no cropping response. In contrast, their long-run elasticity is −0.46, including meaningful reductions in water-intensive perennial cropping and increased fallowing. Short-run analysis alone therefore yields quantitatively different conclusions. California’s flagship groundwater sustainability targets will require a 52% tax in regulated areas, which would lower perennial acreage by 10% and increase fallowing by 21%.
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Copy CitationFiona Burlig, Louis Preonas, and Matt Woerman, "Groundwater and Crop Choice in the Short and Long Run," NBER Working Paper 28706 (2021), https://doi.org/10.3386/w28706.Download Citation
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