Progress 10/01/04 to 09/30/09
Outputs
OUTPUTS: This project involved a series of studies on water scarcity and water quality. The work on water scarcity focused largely on agricultural irrigation water pumped from the Ogallala aquifer, a large but declining water resource underlying the western third of Kansas and portions of seven other states from Texas to Wyoming. One major area of investigation was the effect of the adoption of modern irrigation technologies on aquifer depletion. Such technologies have been subsidized in several state and federal programs under the belief that they conserve water. However, this belief may not hold if the new, more water-efficient technologies give farmers an incentive to grow more water-intensive crops or to increase irrigated acreage. The water conservation impact of modern irrigation systems was investigated using both econometric and mathematical programming approaches. A related body of work employed mathematical programming models to project the impacts of various policies and price changes on long-term (60-year) aquifer decline and producer income. A third area of research on water scarcity used theoretical model of water extracted from a common pool aquifer, accounting for the role of imperfect information. In particular, each user in this model is assumed to realize that his withdrawal rate has some impact on his neighbors future water availability, but he is unsure about the magnitude of this impact. In hydrologic terms, the rate of aquifer transmissivity is unknown to individual users. This modeling context, it can be shown that the lack of information can either increase or decrease water use and users combined income. The research on water quality focused on a particular policy strategy known as water quality trading (WQT). Such trading programs would work on the same principle as a cap and trade policy for carbon emissions. A typical WQT program creates a market where wastewater treatment plants who discharge nutrients into a lake or river are allowed to offset a portion of their discharges by buying water quality credits from nearby farmers. Farmers who sell these credits are then obligated to adopt land management practices that reduce agricultural nutrient discharges. The purpose our research was to determine the feasibility of a possible WQT program in the Kansas River watershed in northeastern Kansas. Conjoint experiments were conducted with farmers and wastewater treatment plant managers to collect data on their willingness to trade in a WQT market under various sets of market rules. These data were then analyzed with random parameters logit models to quantify the impact of different market designs on the willingness to trade on both sides of the market. This information was then included in a computational simulation of a WQT market, providing pictures of how alternative market designs would perform. PARTICIPANTS: Jeff Peterson, the principal investigator on the project, supervised the student theses published under the project and co-authored the all other publications. Major faculty collaborators at KSU included Bill Golden, Alex Saak, Craig Smith, John Leatherman, and Jeff Williams. Faculty collaborators in other states included Sian Mooney (Boise State Univ.), Brett Gelso (American Univ.), Karina Shoengold (Univ. of Nebraska-Lincoln), Jeff Johnson (Texas Tech Univ.) and Steven Amosson (Texas A&M University). Graduate students who completed thesis research under this project include Matt Clark, Ya Ding, Nathan Hendricks, and Sreedhar Upendram. TARGET AUDIENCES: Agricultural producers, local water managers, policy makers PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.
Impacts
The work on this project led to several changes in knowledge, contributing to changes and potential changes in actions and conditions. The research on adoption of modern irrigation systems found that on average, irrigators who adopt these systems consume less groundwater than those who do not. However, the water savings is small, and the public funds invested in this way could have been spent more effectively on other programs. Data obtained from the Kansas Water Office indicates that over $1 million in state funds were spent on cost sharing to upgrade flood systems to center pivots over the period 1996-2003. Our econometric analysis found that, had these funds been spent on water right buyouts instead, more than 91,000 additional acre feet of water savings would have been realized at the same cost. The state of Kansas has since reallocated its water conservation funding, reducing the funds on cost sharing for irrigation equipment and redirecting these funds to water right retirement and leases. The research on water quality trading found that both treatment plants and farmers would be highly sensitive to the market rules and procedures. In particular, farmers choices about whether to sell credits and the acceptable price of credits depends importantly on such factors as the amount of flexibility they have in the implementing new land management practices, the complexity of the signup process, and the penalty they would be forced to pay for any contract violations. Treatment plant managers, meanwhile, were far less likely to trade if they perceive significant risk of being liable if their trading partner were to violate the contract terms. Moreover, the market simulations suggest that giving traders easily accessible information on credit prices and availability is critical to develop a smoothly functioning market. This information will help policy makers understand the most important features of market design if a water quality trading market were developed in northeast Kansas or similar regions. More broadly, it offers guidance for developing successful markets for other ecosystem services such as carbon sequestration.
Publications
- Bulatewicz, T., W. Jin, S. Staggenborg, S. Lauwo, M. Miller, S. Das, D. Andresen, J.M. Peterson, D.R. Steward, and S.M. Welch. 2009. Calibration of a Crop Model to Irrigated Water Use Using a Genetic Algorithm. Hydrology and Earth System Sciences 13: 467-1483.
- Steward, D.R., J.M. Peterson, X. Yang, T. Bulatewicz, M. Herrera-Rodriguez, D. Mao, and N. Hendricks. 2009. Groundwater Economics: An Object-Oriented Foundation for Integrated Studies of Irrigated Agricultural Systems. Water Resources Research 45: W05430.
- Williams, J.R., S. Mooney, and J.M. Peterson. 2009. What is the Carbon Market: Is There a Final Answer Journal of Soil and Water Conservation 64(January/February): 27A-35A. http://www.jswconline.org/content/64/1/27A.refs
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Progress 01/01/08 to 12/31/08
Outputs
OUTPUTS: Stated choice experiments were conducted with wastewater treatment plant managers to elicit their willingness to participate in a Water Quality Trading (WQT) market under different market rules conditions. Such a market would allow wastewater treatment plants to offset a portion of their nutrient discharges by buying water quality credits from farmers. Buying credits then becomes a substitute for investments in more sophisticated treatment technologies. However, the rules of trading may change the desire of plants to participate; for example, firms may need to devote significant staff time to administering and monitoring the contracts with farmers. The choice experiments were administered via in-person interviews with 45 plant managers across the state of Kansas in early 2008. Managers were presented with several hypothetical choice sets; in each choice set they were asked to select one of two possible opportunities to buy water quality credits or else select a non-participation option. Each opportunity to buy credits was associated with a different price of credits and different market rules. A positive mathematical programming (PMP) model was developed to quantify the impact of corn-based ethanol production on the Ogallala aquifer. The model captures the effect of increased incentives to grow corn due to increased prices from ethanol demand. Corn is more water-intensive than alternative irrigated crops in the region, implying a greater strain on the already declining aquifer over time. The model was calibrated to base period (1999-2003) prices and land use and then was simulated over a 60-year horizon with both base period and recent (2006-07) prices reflecting the market impacts of ethanol development. Sheridan county, Kansas, was used as the study region, as it is representative of the Kansas portion of the Ogallala aquifer. A hydrologic module was included in the model to update the water in storage in the aquifer on an annual basis, using a single cell aquifer model and hydrologic data from the Kansas Geological Survey. Results imply a significant shift in crop acreages due to the impact of ethanol, leading to an accelerated decline rate of the aquifer. PARTICIPANTS: Jeff Peterson, the principal investigator on the project, supervised the research activities and co-authored the subsequent publications. TARGET AUDIENCES: Agricultural producers, local water managers, policy makers PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.
Impacts
Policy makers will gain understanding of the impact of alternative institutional arrangements on the participation levels in a water quality trading market. Policy makers will have scientific information on the impacts of biofuel development on water resources in western Kansas Policy makers will gain better understanding of the impact of disseminating hydrological information on the efficiency of unregulated groundwater use for irrigation.
Publications
- Gelso, B.R., J.A. Fox, and J.M. Peterson. 2008. The Cost of Wetlands: Effects of Size, Hydration, and Dispersion. American Journal of Agricultural Economics 90 (February): 172-185.
- Peterson, J.M. and K. Schoengold. 2008. Using Numerical Methods to Address Water Supply and Reliability Issues: Discussion. American Journal of Agricultural Economics 90(December): 1350-1351.
- Williams, J.R., S. Mooney, and J.M. Peterson. 2008. What is the Carbon Market: Is There a Final Answer Journal of Soil and Water Conservation, in press.
- Wheeler, E., J. Johnson, B. Golden, and J. Peterson. 2008. Economic Efficiency of Short-Term vs Long-Term Water Rights Buyout. Invited paper presented at the symposium on Evaluating Water Conservation Strategies and Policies during the 2008 Southern Agricultural Economics Association annual meeting in Dallas, Texas. February.
- Golden, B., J. Peterson, and D. OBrien. 2008. Potential Economic Impact of Water Use Changes in Northwest Kansas. Kansas State University Agricultural Experiment Station and Cooperative Extension Service. Staff Paper No. 08-02 March.
- Golden, B., J. Peterson, and M. Clark. 2008. Possible Impacts of Climate Change in the Ogallala Aquifer Region of Northwest Kansas. Selected Paper presented at the Western Agriculture Economic Association annual meeting. June.
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Progress 01/01/07 to 12/31/07
Outputs
OUTPUTS: A theoretical model was developed to assess the role of imperfect information in water extracted from a common pool aquifer (Saak and Peterson, 2007). In particular, agents in the model realize that their withdrawal rates have some impact on their neighbor's future water availability, but are unsure about the magnitude of this impact. In hydrologic terms, the rate of aquifer transmissivity is unknown to individual users. In a simple 2-user, 2-period game, the lack of information can be shown to either increase or decrease water use and welfare levels in the Nash equilibrium. The direction of impact depends on a rather subtle curvature property of the users' net benefit functions, which can be interpreted as a feature of risk preferences. Stated choice experiments were conducted with farmers to elicit their willingness to participate in a Water Quality Trading (WQT) market under different conditions. Participation in such a market would involve implementation of
environmentally beneficial best management practices, in exchange for a monetary payment. The data were analyzed with a mixed logit model to reveal farmers' willingness to accept values (minimum acceptable payments) under different market scenarios. Farmers were found to be heterogeneous, with some of them heavily discounting payments in situations where enrollment procedures were onerous or where penalties for contract violations were large (Peterson et al., 2007). These results imply that WQT market rules must be set with care to encourage widespread participation. A new Ph.D. program on the "Economics and Management of Water Resources and the Environment" was developed from a grant from the CSREES National Needs Graduate Training competition. Fellows in this program will fulfill all the standard rigorous requirements of an economics PhD, combined with water-related coursework in other sciences, immersion in interdisciplinary research, and international research internships.
Researchers form Kansas and Texas conducted a survey of policy makers, state water managers, and other stakeholders which identified preferred policy alternatives for extending the economic life of the Ogallala aquifer. Results suggest that a voluntary incentive-based program that compensates landowners to permanently convert irrigated cropland to dryland is the preferred policy.
PARTICIPANTS: Alexander Saak, Kansas State University; Bill Golden, Kansas State University; Chennat Gopalakrishnan, University of Hawaii; Brian Hurd, New Mexico State University; Robert Hearne, North Dakota State University
TARGET AUDIENCES: Peer scientists, policy makers, water and environmental planning agencies, farm organizations, environmental organizations
PROJECT MODIFICATIONS: No changes
Impacts
Prompted in part by the research of several W-1190 committee members (agenda setting), the Kansas Water Office commissioned a study by Kansas State University and the USGS to evaluate the water conservation impacts of a state program offering cost share on irrigation equipment subsidies (policy review). The study found that the program led to minimal water savings, and that money invested in the program could be more efficiently spent on programs with a more certain effect on conservation, such as water right retirement (policy design). This prompted a policy change, whereby funding for equipment cost share was reduced and additional funds were invested in water right retirements and leases (policy implementation). Information on the regional economic impact of water use reductions and the value of water rights, developed by several W-1190 committee members (policy review, agenda setting), has been incorporated into Kansas's Conservation Reserve Enhancement Program
(policy design, policy implementation).
Publications
- Saak, A.E. and J.M. Peterson. 2007. Groundwater Use under Incomplete Information. Journal of Environmental Economics and Management 54(September): 214-228.
- Smith, C.M., J.M. Peterson, and J.C. Leatherman. 2007. Attitudes of Great Plains Producers about Best Management Practices, Conservation Programs, and Water Quality. Journal of Soil and Water Conservation 62(September-October): 97A-103A.
- Upendram, S. and J.M. Peterson. 2007. Irrigation Technology and Water Conservation in the High Plains Region. Journal of Contemporary Water Research and Education 137(September): 40-46.
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Progress 01/01/06 to 12/31/06
Outputs
With partial support from the USDA-ARS Ogallala Aquifer Program, county level optimization models were developed to project irrigation water use in the Southern High Plains Region. Projections were made for a 60-year horizon for all counties overlying the High Plains aquifer in KS, CO, and TX. Combined results are summarized in Peterson et al. (2006). Although there is substantial heterogeneity in the region, the models generally predict that farmers will respond to aquifer decline be steadily reducing irrigated acreage while holding water application rates per acre approximately constant. A theoretical model was developed to assess the role of imperfect information in water extracted from a common pool aquifer (Saak and Peterson, 2006). In particular, agents in the model realize that their withdrawal rates have some impact on their neighbors future water availability, but are unsure about the magnitude of this impact. In hydrologic terms, the rate of aquifer
transmissivity is unknown to individual users. In a simple 2-user, 2-period game, the lack of information can be shown to either increase or decrease water use and welfare levels in the Nash equilibrium. The direction of impact depends on a rather subtle curvature property of the users net benefit functions, which can be interpreted as a feature of risk preferences.
Impacts
Policy makers in the Southern Ogallala region have improved information to assess the prospects for water conservation policies.
Publications
- Golden B.B. and J.M. Peterson. 2006. Evaluation of Water Conservation from More Efficient Irrigation Systems. Staff Paper 06-03, Department of Agricultural Economics, Kansas State University, June.
- Peterson, J.M. 2006. Review of Water Institutions: Policies, Performance and Prospects, C. Gopalakrishnan, C. Tortajada, and A.K. Biswas, Eds. International Journal of Water Resources Development 21(December): 679-682.
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Progress 01/01/05 to 12/31/05
Outputs
Work at Kansas State University during this period this focused on the following objectives in project proposal: Objective 2: Quantify comparative economic values of water in alternative uses Objective 3: Assess the effectiveness of alternative management institutions, laws, and policies for water allocation In particular, ongoing work funded by the Ogallala Initiative (a cooperative agreement with USDA/ARS) was leveraged to produce research on the effects of alternative water conservation programs on groundwater use in the Ogallala aquifer region. A dynamic programming model was constructed to mimic the irrigation decisions of a typical groundwater irrigator under alternative policies. The two main policy comparisons were between cost-share programs that subsidize modern irrigation technology and water-right buyout programs that pay farmers to revert to non-irrigation production. The primary finding is that water right buyout programs are a far more cost-effective
way of reducing water use. The estimated reduction in water use (over the lifespan of a single well) was 0.5 acre-inches per dollar spent on technology cost share, and 1.6 acre-inches per dollar invested in a water right buyout program. The policy implication is that, if the policy goal is water conservation, funds currently spent on cost share programs would be spent to greater effect if they were diverted to water right buyouts.
Impacts
Data obtained from the Kansas Water Office indicates that over $1 million in state funds were spent on cost sharing to upgrade flood systems to center pivots over the period 1996-2003. Had these funds been spent on water right buyouts instead, more than 91,000 additional acre feet of water savings would have been realized at the same cost.
Publications
- Peterson, J.M. and Y. Ding. 2005. Economic Adjustments to Groundwater Depletion in the High Plains: Do Water-Saving Irrigation Systems Save Water? American Journal of Agricultural Economics 87(February):148-160.
- Ding, Ya. 2005. The Choices of Irrigation Technologies and Groundwater Conservation in the Kansas High Plains: A Dynamic Analysis. Ph.D. Dissertation, Department of Agricultural Economics, Kansas State University, May.
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