Groundwater and Crop Choice in the Short and Long Run

71 Pages Posted: 26 Apr 2021 Last revised: 8 Dec 2024

See all articles by Fiona Burlig

Fiona Burlig

University of Chicago

Louis Preonas

University of Maryland

Matt Woerman

Colorado State University, Fort Collins

Date Written: April 2021

Abstract

How do agents respond to policy when investments have high upfront costs and lasting payoffs? We estimate farmers’ short- and long-run responses to changes in groundwater pumping costs in California, one of the world’s most valuable agricultural regions, where perennial crops with these investment dynamics are prevalent. We leverage quasi-experimental variation in groundwater costs driven by regulated electricity tariffs to estimate a dynamic discrete choice model of land use with state dependence and forward-looking farmers. Farmers’ short-run elasticity of groundwater demand is −0.72, but temporary cost shocks do not induce crop switching. In contrast, their long-run elasticity is −0.48, driven by a shift away from unsustainable short-run coping strategies and towards meaningful reductions in water-intensive perennial cropping and increased fallowing. California’s flagship groundwater sustainability targets will require a 47% tax in regulated areas on average, which would lower perennial acreage by 10% and increase fallowing by 18%.

Suggested Citation

Burlig, Fiona and Preonas, Louis and Woerman, Matt, Groundwater and Crop Choice in the Short and Long Run (April 2021). NBER Working Paper No. w28706, Available at SSRN: https://ssrn.com/abstract=3834146

Fiona Burlig (Contact Author)

University of Chicago ( email )

5757 S. University Ave
Chicago, IL 60637
United States

Louis Preonas

University of Maryland

Matt Woerman

Colorado State University, Fort Collins ( email )

Fort Collins, CO 80523
CO 80523
United States

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