Water Economics and Policy

Economic development frequently contributes to a decline in water quality; industrial effluents entering the water cause an increase of bacteria that strip the water of its oxygen, often then leading to mass die-offs of other aquatic life. However, the environmental Kuznets curve (EKC) suggests that rising water pollution due to continuing economic growth ultimately stabilizes and then decreases, thus eventually resulting in more oxygenated water that can meet the biological oxygen demand (BOD) required by aquatic life. Yet previous studies have found mixed results for a BOD EKC, with some researchers confirming the inverted U scale of the EKC but others finding different patterns. We therefore re-evaluate the interaction between economic growth and water quality by using a balanced dataset from 1979–1995 and the more dynamic econometric technique of Arellano–Bover/Blundell–Bond generalized methods of moments (GMM) estimator. We compare different samples of OECD and non-OECD countries to determine the likelihood of an EKC. The results show that the OECD countries have an N-shaped curve and that the EKC only emerges with a general sample of non-OECD countries.

Crop choices made by farmers can make important contributions toward the sustainable management of groundwater resources in drought prone regions. However, farmers who would tend to maximize profits under normal circumstances face a trade-off between the choices of risky but more profitable high water intensive (HWI) crops on one hand and the low risk but less profitable low water intensive (LWI) and drought resistant (DR) crops on the other. In drought-hit regions of South India, institutional programs, such as crop water budgeting and farmer schools, have been promoted to provide support and information to the farmers in helping them make judicious crop choices. A multivariate probit (MVP) analysis reveals that crop water budget exercise and farmer field school participation, in fact, are positively associated with HWI crop choices, whereas participation in soil moisture conservation efforts is positively associated with growing LWI and DR crops. Our findings indicate that the objective of groundwater augmentation through institutional interventions that are solely based on educating and training farmers have been ineffective and have even been providing perverse incentives, and that there is a need for adding water extraction compliance components to such support programs in order for them to be efficacious.

We estimate the effect of changes in water deliveries from large projects on agricultural production. We estimate a region-scale, multi-output production model of the San Joaquin Valley of California using observed historical data. The model incorporates seven crop outputs and the labor input as functions of project water supply, groundwater pumping price, other surface water sources, wages, and crop prices. We find that: (1) reduced irrigation water supply reduces the demand for farm labor and the production of some crops, (2) regional production mix tends to shift towards cotton when water supply is high and (3) some structural change has occurred over the course of our 22 year study period, with production of annual crops becoming more sensitive to changes in project water supply and labor becoming less sensitive to local surface water conditions.

Drought response management by utilities in the semi-arid Midwest has been less common outside of Texas than in the Western United States. In response to Oklahoma's unprecedented drought of 2012, Oklahoma City's Water Utilities Trust sought to identify the potential for targeting outdoor conservation education and other incentives such as rebates for low-flow toilets and soil moisture sensors for irrigation systems. This research uses a unique dataset that combines actual household consumption data and county assessor's data of house market value and characteristics with a survey of household conservation adoption of indoor and outdoor water conservation methods. Increased education, age, and income all were found to positively affect indoor and outdoor conservation adoption. Surprisingly neither higher summer consumption during severe drought, nor the perception of prolonged drought increased outdoor conservation adoption, but owning previously conserving Bermuda lawn did increase adoption. However, indoor adoption was higher for homeowners and those who expected prolonged drought. Results suggest that incentives should be targeted at low and average income homeowners and that education regarding the benefits of outdoor conservation should be targeted at all homeowners regarding the higher marginal benefit of seasonal reductions in outdoor watering.