Do Environmental Markets Improve on Open Access? Evidence from California Groundwater Rights

Andrew Ayres, Kyle Meng and Andrew J. Plantinga

No 26268, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D23 P14 P48 Q15 Q25 (search for similar items in EconPapers)
Date: 2019-09
New Economics Papers: this item is included in nep-agr, nep-env and nep-res
Note: EEE PE
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Citations: View citations in EconPapers (2)

Published as Andrew B. Ayres & Kyle C. Meng & Andrew J. Plantinga, 2021. "Do Environmental Markets Improve on Open Access? Evidence from California Groundwater Rights," Journal of Political Economy, vol 129(10), pages 2817-2860.

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