Water Economics and Policy

The extent of recommended conservation practices is crucial for addressing natural resource concerns on the farms. The practices implementation is supported by working lands conservation programs, the Environmental Quality Incentives Program and the Conservation Stewardship Program. The paper applies a propensity score matching approach to evaluate the effects of enrollment in the two federal conservation programs on irrigation water conservation practices adoption in Louisiana row crop agriculture. The analysis reveals that enrollment in the programs leads to statistically significant greater adoption of water management practices. The analysis provides correction for selection bias in adoption that can result from not accounting for the differences between program participants and non-participants. The analysis enables to provide a stronger and relatively accurate argument about the impact of conservation support programs on the adoption of conservation on the ground.

Water transactions are proposed as a policy tool for increasing regional drought resilience and improving allocative efficiency. However, water trading deviates considerably from classical competitive markets and alternative theoretical approaches are useful for understanding water market structure and performance. In this paper, we model a bilateral water transaction using a non-cooperative bargaining model. Then we empirically test predictions regarding time preference, outside options, and water supply risk. The econometric analysis encompasses two transaction regions: Colorado’s Front Range and New Mexico’s Middle Rio Grande Basin. We find evidence suggesting that larger cities pay lower prices in water transactions, faster growing and higher income cities pay higher prices and that prices are higher when snowpack variability is higher. Findings suggest that a stronger time preference results in a less favorable price for urban buyers and that buyer risk-aversion is a greater disadvantage in bargaining in locations with greater water supply variability.

Smallholder farmers in Africa rely heavily on rainfed agriculture. Those who have access to irrigation often receive it at no charge, but quantity, frequency and reliability may be limited without adequate revenue for maintenance and operation. Moreover, the absence of fees means that there are no pricing signals to encourage conservation of this scarce resource. In a situation where farmers do not pay for irrigation water use, this study investigates demand-side issues by eliciting farmers’ willingness to pay (WTP) for access to irrigation water. This study employs choice experiment (CE) and contingent valuation methods (CVMs) to value access to irrigation water, taking Ethiopia as a case in point. Unlike previous studies, this study covers current users and non-users of irrigation water using the same baseline (status quo) conditions — no irrigation — and compares the preferences of these two groups. The four attributes identified in the CE are number of crop seasons, frequency of watering in a season, crop type, and payment level. Results show that marginal WTP was Birr 17.7 (US$ 0.98), 261.8 (US$ 14.54) and 87.6 (US$ 4.87) for number of crop seasons, watering frequency in a season and crop type, respectively. Our estimates of farmers’ WTP for operation and maintenance of irrigation schemes per hectare of irrigated land range from Birr 738 (US$ 41.00) (from the CE) to Birr 784 (US$ 43.56) (from the CVM). We also find that, compared to current users, non-users were willing to pay more in general, as well as for the number of crop seasons specifically.

Water utilities use demand-side management (DSM) policies to incentivize conservation during shortages. However, because utilities often use DSM policies for the first time during drought, it may be difficult to determine the extent to which policy responsiveness relates to an overall conservation culture, and short-term policy responsiveness may not be generalizable to non-drought periods. This research evaluates the impact of drought and utility policies using 10 years of household-level panel data in the first known application of a fixed-effects, latent-class model [Deb, P and PK Trivedi (2013). Finite mixture for panels with fixed effects. Journal of Econometric Methods, 2(1), 35–51] to water demand data. This flexible estimation approach identifies heterogeneity in policy responsiveness over time as it relates to drought conditions and changes in the utility’s billing structure. Two classes of water demand are identified — one associated with responsiveness to weather and a second with responsiveness to policies. In the class of water demand associated with weather, households are less sensitive to policy changes but exhibit increased sensitivity to precipitation both when the utility is actively promoting conservation (during severe drought) and in post-drought years. Implications for long-term effectiveness of utility conservation policies are discussed.

We used a participatory foresight method for assessing if, and how, groundwater markets could be incorporated into local groundwater management policies. We propose an institutional setup adapted to the French water policy context, with a cap and trade scenario introducing groundwater markets in the agricultural sector between now and the 2035 horizon. Considering the local hydrogeological characteristics, we applied this method to five French groundwater basins, and then analyzed the public perception of our scenario by organizing 16 half-day workshops, involving a total of 44 institutional stakeholders and 80 farmers. Overall, almost half of the participants were opposed to the introduction of groundwater markets for various ethical, economic and technical reasons. Many of the preconditions for water trading are still far from being met, and major social and economic risks are anticipated. However, our results also suggest that there might be scope for developing groundwater markets compatible with French water policy at a local scale; the preconditions for this are that specific local hydrogeological and agricultural situations are taken into account, and that a participatory process is developed, involving institutional stakeholders and farmers.