Working Paper: NBER ID: w26268
Authors: Andrew B. Ayres; Kyle C. Meng; Andrew J. Plantinga
Abstract: Environmental markets are widely prescribed as an alternative to open-access regimes for natural resources. We develop a model of dynamic groundwater extraction to demonstrate how a spatial regression discontinuity design that exploits a spatially-incomplete market for groundwater rights recovers a lower bound on the market’s net benefit. We apply this estimator to a major aquifer in water-scarce southern California and find that a groundwater market generated substantial net benefits, as capitalized in land values. Heterogeneity analyses point to gains arising in part from rights trading, enabling more efficient water use across sectors. Additional findings suggest the market increased groundwater levels.
Keywords: Environmental markets; Groundwater rights; California; Spatial regression discontinuity; Common-pool resources
JEL Codes: D23; P14; P48; Q15; Q25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| introduction of a groundwater market (Q21) | increases in land values (R52) |
| groundwater market (Q21) | increased groundwater levels (Q25) |
| groundwater market (Q21) | aggregate net benefit for agricultural parcels (Q15) |
| groundwater market (Q21) | 40% increase in aggregate land value (R52) |