Fiona Burlig, Louis Preonas, and Matt Woerman “Groundwater and Crop Choice in the Short and Long Run” (July 2024) | WP-349 | Blog Post
Abstract:
How do agents respond to policy when investments have high upfront costs and lasting payoffs? We estimate farmers’ short- and long-run responses to changes in groundwater pumping costs in California—where perennial crops with these features are prevalent, and where groundwater pumps consume 6% of the state’s electricity. We use both fixed effects and dynamic discrete choice models that leverage quasi-experimental variation in agricultural electricity tariffs. In the short run, farmers’ groundwater (electricity) demand elasticity is −0.76 (−0.72), and they do not change crops. In contrast, the long-run groundwater (electricity) elasticity is −0.36 (−0.37), driven in part by meaningful reductions in water intensive perennial cropping. Meeting California’s sustainability targets would require reallocation of 9% of acres, including a 50% increase in fallowing. This would also reduce electricity consumption for this end-use by nearly 20%.