Essays in Water Economics

Abstract

This dissertation investigates the issue of water policy in California, focusing on allocation rules in the agricultural sector and how they affect farmer crop choice and water usage. Chapter 1 includes background on California agriculture and the surface water and groundwater allocation system in the state, and a strategy for generating novel estimates of groundwater pumping and its externalities. Then a structural model is estimated and used in counterfactual simulations of new water policy regimes. Chapter 2 extends the analysis in a theoretical context by studying the dynamic farmer decision to grow a permanent crop. The model is solved and the equilibrium studied, the key question being how permanence interacts with water-intensity in a setting with externalities. This chapter also shows the characteristics of an equilibrium involving cycles in the share of farmers who grow water-intensive crops.