Christopher Goemans

Water storage in a changing environment: The impact of allocation institutions on value

As populations increase in arid regions of the world, investment in water infrastructure improves resource management by increasing control over the location and timing of water allocation. Many studies have explored freer trade as a substitute for additional infrastructure investment. We instead quantify how water allocation institutions, reservoir management objectives, and storage capacity influence the value derived from a reservoir system. We develop a stochastic dynamic programming model of a reservoir system that faces within-year variation in weather-dependent water demand as well as stochastic semiannual inflows. We parameterize the model using the Colorado-Big Thompson system, which transports stored water from the West Slope of the Rocky Mountains to the East Slope. We then evaluate the performance of the system under five institutional settings. Our results suggest that rigid allocation mechanisms and inefficient management objectives result in a decrease of up to 13% in the value generated from stored water when compared to a free trade scenario, an impact on par with predicted losses associated with climate-change-induced inflow reductions. We also find that under biased management objectives, increasing storage capacity can decrease the social value obtained from stored water.

Producer Responses to Surface Water Availability and Implications for Climate Change Adaptation

Climate change is predicted to bring changes in weather and water availability. The effect on agriculture depends on the ability of producers to modify their practices in response to changing distributions. We develop a two-stage theoretical model of planting and irrigation decisions and use a unique dataset to empirically estimate how producers respond to changes in expected water availability and deviations from expectations. As water supplies decrease, producers respond by planting fewer acres and concentrating the application of water. Highlighting the importance of adaptation in this context, failure to account for this behavioral response overstates climate change impacts by 17%. (JEL Q15, Q25)

Evaluating the effect of conservation motivations on residential water demand

Utilities and water suppliers in the southwestern United States have used education and conservation programs over the past two decades in an attempt to ameliorate the pressures of increasing water scarcity. This paper builds on a long history of water demand and environmental psychology literature and attempts to answer a simple question: do households primarily motivated by environmental and social (E&S) considerations consume water differently than households motivated primarily by cost and convenience (C&C)? We find that E&S consumers use less water than C&C consumers on average. We also find that there is no statistical difference between E&S and C&C consumers in their consumption responses to changing prices, temperature, and precipitation. This implies that targeting future conservation efforts to self-reported consumer groups may not improve policy effectiveness.

The Interaction of Water Restriction and Pricing Policies: Econometric, Managerial and Distributional Implications

Abstract Price increases and water use restrictions are two common policy instruments used to reduce water demand during drought. Previous studies have either ignored one of the policies or treated each as independent of the other. We show, theoretically and empirically, that these policies interact in a nontrivial way. Ignoring this interaction has implications for both the estimation of programme effectiveness, as well as the use of existing estimates by practitioners. Using 1997–2005 data from roughly 10 000 households, we estimate the impact of both policies on demand accounting for their interaction. The analysis suggests that failure to account for the interaction will result in biased estimates of programme effectiveness; the magnitude and sign differ depending on scale and timing of the policies. Moreover, ignoring the interaction, when applying existing estimates, will result in an overestimate of potential water savings from the policies. Results also provide new insight into “who bears the conservation burden”.

The Heterogeneous Impacts of Groundwater Management Policies in the Republican River Basin of Colorado: IMPACTS OF GW MANAGEMENT POLICIES

Groundwater is a critical input to agricultural production across the globe. Current groundwater pumping rates frequently exceed recharge, often by a substantial amount, leading to groundwater depletion and potential declines in agricultural profits over time. As a result, many regions reliant on irrigated agriculture have proposed policies to manage groundwater use. Even when gains from aquifer management exist, there is little information about how policies affect individual producers sharing the resource. In this paper, we investigate the variability of groundwater management policy impacts across heterogeneous agricultural producers. To measure these impacts, we develop a hydroeconomic model that captures the important role of well capacity, productivity of water, and weather uncertainty. We use the model to simulate the impacts of groundwater management policies on producers in the High Plains aquifer of eastern Colorado and compare outcomes to a no-policy baseline. The management policies considered include a pumping fee, a quantity restriction, and an irrigated acreage fee. We find that well capacity and soil type affect policy impacts but in ways that can qualitatively differ across policy type. Model results have important implications for the distributional impacts and political acceptability of groundwater management policies.

Western Water Markets: Effectiveness and Efficiency

Most rivers throughout the western U.S. are fully appropriated. New municipal, industrial, recreational and environmental water demands will likely be met by reallocating water out of agriculture, the region’s largest user of water. The question is: how best to do so? Water markets have long been advocated by many as the answer to this question. This chapter begins with an overview of water allocation law and water markets in the West including a discussion of the various alternative market-based reallocation mechanisms being considered. A summary of recent literature on market activity in the West is followed by a detailed look at transactions in the Colorado River Basin.