Gains from water markets: Micro-level evidence on agricultural water demand: Katrina Jessoe | RSS

Katrina Jessoe, Associate Professor at University of California Davis, will be the speaker for this seminar. Katrina will be discussing her paper: Gains from water markets: Micro-level evidence on agricultural water demand.

Abstract

This paper demonstrates that the establishment of well-functioning water markets may substantially mitigate the costs of drought. We develop a framework to model the costs of incomplete water regulation, and simulate the efficiency gains from water trading across the agricultural and urban sectors. Critical to this exercise are credible estimates of the price elasticity of demand for agricultural water. We use monthly panel data on well-level agricultural groundwater extraction in an area that charges volumetric rates for groundwater to estimate the elasticity.  Demand is  inelastic, with estimates ranging from -0.17 to -0.22. Our simulation suggests that in an agriculturally productive and dense urban area of California, a water market could have reduced the welfare impacts to residential users from the 2015 drought mandate by 60% from $83 million to $33.5 million. Water markets present a promising adaption strategy to climate change.

This seminar is open to all LSE staff and students. If you are from outside the LSE and would like to attend, please email Gri.Events@lse.ac.uk to register for a place.