Source: UNIVERSITY OF CALIFORNIA, RIVERSIDE submitted to
SUSTAINABILITY ECONOMICS OF AGRICULTURAL PRODUCTION IN RESOURCE-CONSTRAINED ENVIRONMENT.
Sponsoring Institution
National Institute of Food and Agriculture
Project Status
TERMINATED
Funding Source
Reporting Frequency
Annual
Accession No.
0202516
Grant No.
(N/A)
Project No.
CA-R-ENS-7275-H
Proposal No.
(N/A)
Multistate No.
(N/A)
Program Code
(N/A)
Project Start Date
Oct 1, 2009
Project End Date
Sep 30, 2014
Grant Year
(N/A)
Project Director
Knapp, K.
Recipient Organization
UNIVERSITY OF CALIFORNIA, RIVERSIDE
(N/A)
RIVERSIDE,CA 92521
Performing Department
Environmental Sciences
Non Technical Summary
California agriculture and water resources are under escalating stress due to population growth, limited water supplies, declining water table elevations and/or high water tables, and decreased water quality. Climate change may substantially impact California agriculture due to changing water supplies and temperature, and drought currently restricts supplies. California agriculture can help alleviate global warming via carbon sequestration and biofuel production. The research explores agricultural water conservation and emission reduction. California water is fully allocated, and knowing the costs of reallocation from agriculture to other uses is fundamental. Impacts of water reallocation on employment, local businesses, and groundwater are also fundamental to water allocation policy. Salinity/drainage is an enduring problem. Solving this problem requires analysis of potential management strategies, development of policy instruments such as pricing mechanisms, and an overall assessment of sustainability. Related to this are groundwater management issues such as falling water table levels in the prime agricultural areas. These areas are typically unregulated leading to questions of efficient management and externality losses. In addition, sustainable resource use is now squarely on public policy agendas; however, no rigorous definitions with strong foundations have been given in the literature, thus public policy can be subjective and contentious. For expected outcomes and impacts, the work shows that the agricultural sector can achieve substantial water conservation and emission reduction at relatively low costs to a point, but after some point the costs of reductions can become significant. We also find that deficit irrigation and reuse are beneficial, traditional irrigation systems can be economically efficient under a wide range of conditions, and land retirement is not always efficient. This project also continues long-standing research on salinity and drainage problems in the San Joaquin valley. Utilizing information from agronomic and soil sciences studies, results suggest that this problem can be solved over intermediate time scales while maintaining agricultural productivity. This is accomplished primarily via reuse; the results also demonstrate substantial spatial variability in emission control, and salt concentration buildup from reuse occurs slowly. Groundwater economic studies to date find relatively small inefficiency losses even when considering water transfers and salt importation. Regarding sustainability, income from extraction activities necessarily declines starting from a full aquifer; however, preliminary results indicate that consumption does not necessarily decline when asset accumulation is accounted for. More generally, we have demonstrated a new welfare criterion for intergenerational efficiency and equity. This demonstrates how an economy could utilize finite nonrenewable resources while accounting for the welfare of future generations. The work also demonstrates that standard economic benefit-cost procedures do not necessarily guarantee sustainability.
Animal Health Component
(N/A)
Research Effort Categories
Basic
(N/A)
Applied
(N/A)
Developmental
(N/A)
Classification

Knowledge Area (KA)Subject of Investigation (SOI)Field of Science (FOS)Percent
1030210301020%
1110210301025%
6010210301040%
6050210301015%
Goals / Objectives
1. Agricultural production and the environment. Develop process-based economic, computational, and statistical representations of agricultural production that reflect biophysical conditions, producer preferences, and management strategies for resource conservation and environmental preservation. 2. Westside salinity and drainage. Continue the development of computational models for hydrologic balance in drainage-affected areas, upslope source control, and aquifer salt concentrations resulting from reuse activities. Synthesize the results to propose solutions for drainage management on the westside SJV. Use the analyses to evaluate recent land retirement initiatives in the SJV, and the production of biofuels from saline drainwater. 3. Groundwater management. Investigate groundwater management in California, including eastside SJV extraction and externality policy, and salt concentration build-up over long time scales in southern SJV areas without significant drainage outflow. Develop a formal analysis of groundwater sustainability utilizing the concepts from environmental macroeconomics. 4. Drought, water transfers, and climate change. Investigate extended effects of water transfers that have not been previously addressed. This includes dynamic effects of water transfers out of major agricultural basins overlying groundwater aquifers, formalization of local economy effects of water transfers, development of a theoretical basis on efficiency and equity grounds for consideration of local economy effects, investment of resource rents over time to counteract declining resource bases, and policy instruments to mitigate transition costs. Apply the analyses to questions relating to drought, climate change, and biofuel production. 5. Growth, development, and sustainability. Apply computational economic models of agricultural production developed for California agriculture to problems of tropical and developing country agriculture that capture biomass and soil quality dynamics, and household labor and market constraints. Investigate agricultural and natural resource determinants of regional economic growth, and analyze conditions under which market economies will or will not achieve sustainability. Develop operational and quantifiable definitions of sustainability. Investigate the implications of sustainability for economic growth, and human, physical, and biological stocks. Propose and specify policy instruments for sustainability.
Project Methods
1. Agricultural production and the environment. Management strategies include source control (crop areas, irrigation switching, reduced input use, and improved management and timing), emissions reuse, and disposal options such as solar evaporators for the drainage problem. Economic analysis generally represents a synthesis of agricultural engineering, crop and water science, and economic data. Land quality is formalized as a spatial density function indicating the distribution of land quality measured as yields for various crops. Estimation is formulated as a nonlinear programming problem. The methods will be tested using Monte-Carlo methods, and then applied to SJV water districts. 2. Westside salinity and drainage. Research on the previous project by the author and co-workers develops three interrelated computational models for Westside salinity and drainage problems. The first maximizes profits subject to hydrologic balance in the drainage-impacted region, the second is an upslope-downslope model, and the third model analyzes the effect on aquifer salt concentrations over a multi-decade time scale. This research will complete and extend these studies, and synthesize the results to propose the broad outline of a solution for drainage management on the Westside SJV. 3. Groundwater management. Agricultural production overlying an aquifer with endogenous water table elevation and salt concentration was previously analyzed. This research extends this to include multiple crops and irrigation methods, and will be used to identify management strategies, policy instruments, and sustainability under unregulated and managed usage. The standard groundwater economics model has been expanded to include an additional economic sector with asset and physical capital accumulation to allow formal treatment of sustainability. 4. Drought, water transfers and climate change. Previous dynamic analysis of water transfers in agricultural basins overlying aquifers is extended to include water management, crops and irrigation systems, and land quality. This model can also be applied to drought and and climate change, and the production functions can be modified for carbon fertilization and temperature effects. 5. Economic growth, development, and sustainability. A study of household farms with shifting cultivation was developed as part of a completed PhD dissertation and is to be completed by specifying SOM dynamics.Two-sector dynamic general equilibrium models are being constructed to address agriculture and natural resource effects on economic growth and development. Sustainability is defined as intertemporal efficiency combined with intergenerational equity measured as nondeclining welfare over time. Previous research by the investigator developed an operational criterion for generating sustainable time paths. Theoretical and numerical analysis will be used to establish efficiency, time consistency, and characterization of the implied time paths.

Progress 10/01/09 to 09/30/14

Outputs
Target Audience: Academic. Research in Objectives 1,3,and 5 is designed to contribute to fundamental knowledge of agricultural and natural resource economics and analytical methods. Objective 1 further develops mathematical and computational models for field-scale irrigated agricultural production, investigates inverse estimation techniques for regional-scale analysis with land quality, and develops a dynamic, age-structured model of regional agricultural production with perennial crops. Objective 3 extends existing groundwater economics with an endogenous model of water demand and deep percolation, and develops a formal framework for analysis of groundwater sustainability. Objective 5 analyzes the interrelation of agriculture and natural resources in economic growth and development. Policy, water agencies, and water districts. Research in Objectives 2 and 4 is directed towards policy analysis and formulation. Objective 2 demonstrates that salinity and drainage problems are solvable over decadal time scales and analyzes several different policy instruments for achieving this solution. The computational models contribute to the analysis of water conservation, water transfer effects, and climate change. Objective 3 and 4 analyze the effect of climate change on agricultural production, while Objective 4 provides a formal rationale for water-sharing based on self-interest and stemming from trade in goods and services. This can be helpful in conducting negotiations among political entities. Agricultural producers. Research in Objectives 1 and 2 contribute analysis of water conservation and emission reduction management strategies for irrigated agricultural production. Objectives 2 and 3 indicate that salinity/drainage problems can be solved in-valley over intermediate time scales, while Objective 3 indicates gains from cooperative groundwater management. Effort. Material on groundwater management, economic growth and agricultural productivity, and sustainability is used in classes taught by the investigator. Research findings have been presented at a large number of conferences, and are published or in preparation for publication in journals and books. The investigator has also attended meetings with water agency personnel where agricultural production economics, salinity/drainage, and economic policy analysis were discussed. Changes/Problems: Nothing Reported What opportunities for training and professional development has the project provided? Two graduate student PhD dissertations in Economics were part of this project. One dissertation was completed, while the second is still in progress. ties as part of this research. How have the results been disseminated to communities of interest? Results of the work on salinity/drainage, groundwater management, and economic growth and sustainability have been incorporated into undergraduate and graduate-level courses. The results for agricultural production with perennial crops and the trade model work were presented in part at seminars given by doctoral students. Likewise, the agricultural production, groundwater sustainability and trade model work have been presented at a number of academic disciplinary conferences, as well as a recent international water conference. There have been several publications to date detailing the findings in academic journals and published books. In addition, the agricultural production findings and salinity/drainage research was the basis for participation in a meeting between growers, agency personnel, and academics in the summer of 2014. What do you plan to do during the next reporting period to accomplish the goals? Nothing Reported

Impacts
What was accomplished under these goals? The work shows that the agricultural sector can achieve substantial water conservation and emission reduction at relatively low costs to a point, but after some point the costs of reductions can become significant. We also find that, contrary to previous economic studies, deficit irrigation and reuse are beneficial, traditional irrigation systems can be economically efficient under a wide range of conditions, and land retirement is not always efficient. For SJV salinity/drainage, the findings indicate that this problem can be solved over intermediate time scales while maintaining agricultural productivity. This is accomplished primarily via reuse; there is also substantial spatial variability in emission control, and salt concentration buildup from reuse occurs slowly. Regarding sustainability, income from extraction activities necessarily declines starting from a full aquifer. However, common property usage is not necessarily the only or even main cause of non-sustainability. Furthermore, the sustainability analysis indicates that a declining water table may be completely consistent -or even required - with sustainability. 1. Agricultural production economics. The field-level work provides estimates of irrigation management response to water scarcity, water prices, and emission charges. The crop rotation model is an excellent fit to the data, provides a mechanistic partial explanation for observed cropping decisions, and demonstrates significant crop rotation effects. The field-level perennial crop model gives optimal water management and rotations for a perennial crop. This allows for carryover effects in which water stress in one year can impact yields in future years. The regional perennial crop model finds damped cycles to an optimal steady-state, possibly over a considerable length of time. Farmers borrow to fund the vineyard, then save in the later years. Water demand is dynamic: it evolves over time as perennial age distribution and area evolves. This has important consequences for understanding the effect of drought, since where producers are in the production cycle can greatly affect the response to water scarcity. Regional agricultural production analysis in this research finds that substantial water savings can be generated at relatively small costs. However, as water availability becomes more limiting, demand becomes somewhat more inelastic, implying only a small response to water prices. At sufficiently high water prices, production is no longer profitable and quantity demanded falls to zero. The economic analysis considered to date in this project generally finds that many resource conservation and environmental quality issues associated with irrigated agriculture can be solved by field-level management. This contrasts with the more drastic changes in fallowing, cropping patterns, and irrigation systems proposed in other economic studies. 2. Salinity and drainage. The research demonstrates considerable potential for drainwater reuse in conjunction with source control and evaporation ponds to solve Westside drainage problems. The results indicate substantial economic viability over several decades at least. While reuse will result in increasing water table salt concentrations over time, the rate of increase is small due to the large volume of receiving water relative to percolation flows. 3. Groundwater economics. The new groundwater model finds significantly different time paths than those computed in earlier work. Also, the inefficiency associated with use of an unregulated common property aquifer has generally been found to be relatively modest in most previous studies. Here however, we find larger management benefits, thereby enhancing the need for management. Sustainability is widely discussed in water management. Although the term is rarely formally defined, it generally implies a steady-state resource system. The work here applies concepts from environmental macroeconomics: (a) sustainability requires joint analysis of both natural resource and physical capital stocks, it cannot be done for the natural resource stock alone. (b) A declining resource stock is not a necessary indicator of non-sustainability, (c) common property usage is the not the only - or even primary cause of sustainability as non-sustainability can also occur under even efficient management, and (d), sustainability requires an appropriately specified objective. Sustainability here is intertemporal efficiency and intergenerational equity, and we demonstrate how this can be implemented. Starting from a full aquifer, regional sustainability can be maintained with declining groundwater stocks with sufficient investment in manufacturing capital stocks to offset declining agricultural income as the aquifer is depleted. Analysis with financial capital also indicates that the usual present value criterion can be problematic when capital markets are imperfect, such as in low-income countries with credit constraints. 4. Drought, water transfers and climate change. The river basin model decomposes climate change impacts for three sub-basins under four possible future climate scenarios. Projected mean water supply reductions have a significant impact on cropping areas and management; water supply reliability is also influential as high-value perennials can only be planted with relatively secure water supplies. Salt effects are significant under severe climate change which limits salt leaching. Overall, the analysis finds significant climate change impacts and illustrates the multiple channels through which climate change can operate. The results from the trade analysis are quite striking. Most studies in water economics are partial equilibrium with welfare increasing in individual sectors of the economy increasing as that sector gets more water, thus setting up a potential for perceived conflict. However, in our analysis allowing for trade in goods/services among sectors, we find that there are production conditions such that welfare functions turn down. This in turn implies that it is self-interest for the competing groups to share water. At a minimum, trade implies that the gain for additional water to an individual entity is less, thus it will be at least conflict-reducing even if not conflict-ending. Also analyzed is the possibility to utilize trade policy as leverage to gain more water. The results here show that initial water allocations may enhance or detract for trade policy as leverage, therefore implying equitable or inequitable outcomes depending on the circumstances. 5. Economic growth and natural resources. Most economic literature emphasizes institutions and largely ignores natural resources in contrast to scientific literature which emphasizes agricultural productivity and natural resources, particularly energy. Much of the economic literature on the second topic utilizes production functions seemingly inconsistent with natural processes. As background, the work here first specifies an alternate representation of technology, and demonstrates that this alternate representation can be broadly consistent with U.S. growth data. The role of public capital and infrastructure is also identified in contrast to standard literature which emphasizes constant returns to scale and private sector investment. This model is then extended to consider agricultural productivity in development. Under standard assumptions, agricultural productivity does not have a particularly significant impact consistent with the literature. However, with public capital and infrastructure, then threshold effects and development traps are possible, and agricultural productivity can be critical to development in striking contrast to conventional economic theory.

Publications

  • Type: Book Chapters Status: Published Year Published: 2012 Citation: Knapp, K.C. Microeconomics of salinity and drainage management. Chapter 31 in In: K. Tanji and W. Wallendar, Editors, Agricultural Salinity Assessment and Management. American Society of Civil Engineers. 2012.
  • Type: Book Chapters Status: Published Year Published: 2014 Citation: Knapp, K.C., K. Schwabe, K. Baerenklau. Economics of salinity and drainage management. Chapter 14 in A. Chang and D.B. Silva (editors). Salinity and Drainage Management in San Joaquin Valley: Science, technology, and policy. Springer 2014.
  • Type: Journal Articles Status: Published Year Published: 2009 Citation: Muralidharan, D., and K.C. Knapp. 2009. Spatial dynamics of irrigation scheduling. Water Resources Research, 45:2009, 13 pgs.
  • Type: Journal Articles Status: Published Year Published: 2012 Citation: Connor, J.D., K. Schwabe, D. King, K. Knapp. Irrigated agriculture and climate change: The influence of water supply variability and salinity on adaption. Ecological Economics 77(2012), pgs 149-157.
  • Type: Book Chapters Status: Accepted Year Published: 2015 Citation: K.C. Knapp and B. Franklin. Sustainability economics of groundwater usage and management. Chapter in A. Dinar and K. Schwabe (editors). Handbook of Water Economics. (accepted for publication).
  • Type: Book Chapters Status: Awaiting Publication Year Published: 2015 Citation: Knapp, K.C. and K. Schwabe. Groundwater use and irrigated agriculture in California: dynamics, uncertainty, and conjunctive use. Chapter 10 in K. Burnett, R. Howitt, J. A. Roumasset, and C.A. Wada. (editors). Routledge Handbook of Water Economics and Institutions. Routledge, New York, NY. (accepted for publication).
  • Type: Book Chapters Status: Accepted Year Published: 2015 Citation: Schwabe, K., and K.C. Knapp. Salinity and groundwater management: a hydro-economic analysis. Chapter in A. Dinar and K. Schwabe (editors). Handbook of Water Economics. (accepted for publication).


Progress 01/01/13 to 09/30/13

Outputs
Target Audience: This research is primarily oriented to the academic literature on agricultural, natural resource, and environmental economics. The work is intended to be published in reviewed, technical journal articles. The work is also presented at conferences at which agency personnel, consulting firms, and growers attend. Several chapters are either submitted or in preparation for semi-technical, general interest edited books. Changes/Problems: Nothing Reported What opportunities for training and professional development has the project provided? Two graduate student PhD dissertations in Economics were part of this project. One dissertation was completed, while the second is still in progress. How have the results been disseminated to communities of interest? The results for agricultural production with perennial crops were presented in part at seminars given by doctoral student, and at a major disciplinary conference this summer. What do you plan to do during the next reporting period to accomplish the goals? 1. Agricultural production. The perennial crops results are to be written up into two separate papers and submitted for publication. 3. Groundwater economics. Further development is being carried out for related analyses, including game-theoretic models, conjunctive use with stochastic surface supplies, and the effect of climate change on irrigated agricultural operating through reduced water availability and reliability. These studies have been written into a draft book chapter currently under review. A new model for groundwater quantity and quality has also been formulated for a second book chapter under preparation. Finally, a draft version of a sustainability groundwater study completed in 2012 is also being currently edited as a third book chapter. 4. Drought and water transfers. A draft manuscript of the first trade paper is nearing completion and will be submitted for publication later this year. This paper was based on a Ricardian trade model. New research currently underway is investigating the same issues but with economies of scale as the trade-generating mechanism.

Impacts
What was accomplished under these goals? The work shows that the agricultural sector can achieve substantial water conservation and emission reduction at relatively low costs to a point, but after some point the costs of reductions can become significant. We have also found that, contrary to previous economic studies, deficit irrigation and reuse are beneficial, traditional irrigation systems can be economically efficient under a wide range of conditions, and land retirement is not always efficient. For salinity and drainage problems in the San Joaquin valley, the findings indicate that this problem can be solved over intermediate time scales while maintaining agricultural productivity. This is accomplished primarily via reuse; the results also demonstrate substantial spatial variability in emission control, and salt concentration buildup from reuse occurs slowly. Regarding sustainability, income from extraction activities necessarily declines starting from a full aquifer; however, preliminary results indicate that consumption does not necessarily decline when asset accumulation is accounted for. 1. Agricultural production and the environment. Dissertation research under my supervision was completed on mathematical models of perennial cropproduction at the field and regional levels. A dynamic programming model for field-level grape production was formulated. This model selects optimal water management and rotation time with dynamic biomass growth. A regional programming model for grape production with age-dynamics and borrowing/saving was also completed. This analysis is for a representative household investing in and managing a perennial crop. State variables are area by age category and borrowing/saving. The analysis is largely complete: theory identifies optimality conditions and steady-states, computational experiments explore production dynamics, and an empirical application to Australian wine grapes is used to estimate dynamic water demand, response to irrigation variability, and climate change impacts. The regional perennial crop model finds damped cycles to an optimal steady-state, although this takes a considerable length of time. Farmers borrow to fund the vineyard, then save in the later years of the vineyard life. Water demand is dynamic. Compared to the usual specifications in the agricultural literature, it evolves over time as perennial age distribution and area evolves. This has important consequences for understanding the effect of drought, since it implies that where producers are in the production cycle will greatly affect the response to water scarcity. For example, if the crop is relatively young, then their response to water scarcity may be fairly small; however, if the crop is relatively old, then growers may be more likely to both reduce water applications as well as remove the crop if the scarcity is anticipated to be relatively long-lasting. In addition, a Monte-Carlo analysis was used to identify the effects of climate change on production. 3. Groundwater management. Substantial work on economic analysis of groundwater usage and management was completed during this period. Existing work typically represents agricultural production with a derived water demand curve and linear deep percolation emissions. A new groundwater economics model was developed here in which an explicit agricultural production model with endogenous crop areas, irrigation technologies, and applied water is coupled to a lumped-parameter model of the aquifer. The analysis is considerably more realistic than before in that the implied water demand is a reverse S-shaped curve and deep percolation is nonlinear. The model is applied to the analysis of groundwater time paths and benefits from groundwater management. The agricultural production model developed for use in the groundwater studies finds that –starting from an initially large allocation – substantial water savings can be generated at relatively small costs. However, as water availability becomes more limiting, demand becomes somewhat more inelastic, implying only a small response to water prices. At sufficiently high water prices, production is no longer profitable and quantity demanded falls to zero. The new groundwater model finds significantly different time paths than those computed in earlier work. Also, the inefficiency associated with use of an unregulated common property aquifer has generally been found to be relatively modest in most previous studies. Here however, we find larger management benefits, thereby enhancing the need for management. Another outcome of this analysis is that declining water tables levels do not necessarily mean unsustainable use as the efficient solution also exhibits declining water tables from an initially full aquifer. Common property and efficient usage both converge to a steady-state due to increased pumping costs. On the issue of groundwater sustainability, it is likely more useful to discuss rates of groundwater use rather than simply focus on whether water table levels have declined. 4. Water transfers and climate change. New work was initiated on identifying conditions under which it is in the self-interest of separate political entities to share water in a joint river basin. This is a two-stage equilibrium model: the first stage utilizes a trade model to identify equilibrium prices, quantities and welfare as a function of water allocation, while the second stage utilizes the results from the trade model to formulate a game theory problem which is subsequently solved to determine political equilibrium. The results from the trade analysis are quite striking. Most studies in water economics are partial equilibrium with welfare increasing in individual sectors of the economy as each sector gets more water, thus setting up a potential for perceived conflict. However, in our analysis allowing for trade in goods/services among sectors, we find that there are production conditions such that welfare functions turn down. This in turn implies that it is self-interest for the competing groups to share water. At a minium, trade implies that the gain for additional water to an individual entity is less, thus it will be at least conflict-reducing even if not conflict-ending. Also analyzed is the possibility to utilize trade policy as leverage to gain more water. The results here show that initial water allocations may enhance or detract for trade policy as leverage, therefore implying equitable or inequitable outcomes depending on the circumstances. The trade model is currently motivated by issues surrounding joint use of river basins where two or more countries may have riparian rights. However, some forms of these trade models may also be useful for water allocation between sectors in regions such as California. In more abstract terms, the research demonstrates that unique insights might be gained from general equilibrium analysis in contrast with most previous research on water.

Publications

  • Type: Book Chapters Status: Published Year Published: 2013 Citation: Knapp, K.C., K. Schwabe, K. A. Baerenklau. Regional economics and management in closed drainage basins. Chapter 14 in A. C. Chang and D. Drawer Silva (editors). Salinity and Drainage in the San Joaquin Valley, California: Science, Technology, and Policy. 2013: pgs 353-379.


Progress 01/01/12 to 12/31/12

Outputs
OUTPUTS: Agricultural production economics. This analysis is for a household investing in and managing a perennial crop. State variables are area by age category and borrowing/saving. The analysis is largely complete: theory identifies optimality conditions and steady-states, computational experiments explore production dynamics, and an empirical application to Australian wine grapes is used to estimate dynamic water demand, response to irrigation variability, and climate change impacts. Groundwater sustainability. Work progressed on a theoretical and computational model for groundwater and natural resource sustainability. The model combines agricultural production with both surface and groundwater flows, aquifer dynamics, and financial capital accumulation. The model is solved under three regimes: common property (unregulated usage), efficiency, and sustainability where regional annual net benefits are constrained to be non-declining over time. The theoretical analysis is complete, as are preliminary results from empirical analysis. The work was presented at an international conference. Water transfers and climate change. New work was initiated on identifying conditions under which it is in the self-interest of separate political entities to share water in a joint river basin. This is a two-stage equilibrium model: the first stage utilizes a trade model to identify equilibrium prices, quantities and welfare as a function of water allocation, while the second stage utilizes the results from the trade model to formulate a game theory problem which is subsequently solved to determine political equilibrium. Analysis and exposition were also completed for a regional programming model of irrigated agriculture in a river basin to evaluate climate change. The model allows for irrigation system investment and endogenous crop choice with probabilistic surface flows. Climate change channels include irrigation scarcity, variability and salinity. The analysis is for the Murray-Darling river basin in Australia and the work is now published. Economic growth and agricultural productivity. This work analyzes the potential role of agricultural productivity and natural resources in understanding economic growth and development. An extensive data set for population, economy, and natural resources was assembled for the U.S. over a 100 year period. An aggregate growth model was developed with alternate technology representation based on activity analysis and including economies of scale and infrastructure. This model is then extended to a second model with separate agricultural and manufacturing sectors. In both models, parametric conditions leading to growth or no-growth are characterized theoretically and computationally. An extensive set of computational experiments are performed to characterize model dynamics and to identify the quantitative impacts of parametric changes. Based on these results, a quantitative model is developed and compared to U.S. data over the 100 year period. This model is then used with counterfactual experiments to identify reasons for lack of development in some regions of the world. PARTICIPANTS: Bradley Franklin, Economics graduate student, UC Riverside. The reported work on agricultural production economics is part of his dissertation. The work on Australian river basin management is joint with Jeff Connor at CSIRO in Australia. TARGET AUDIENCES: Academic. Research in Objectives 1,3,and 5 is designed to contribute to fundamental knowledge of agricultural and natural resource economics and analytical methods. Objective 1 further develops mathematical and computational models for field-scale irrigated agricultural production, and investigates inverse estimation techniques for regional-scale analysis with land quality. Objective 3 develops a formal framework for analysis of groundwater sustainability, while Objective 5 analyzes the interrelation of agriculture and natural resources in economic growth and development. Policy, water agencies, and water districts. Research in Objectives 2 and 4 is directed towards policy analysis and formulation. Objective 2 demonstrates that salinity and drainage problems are solvable over decadal time scales and analyzes several different policy instruments for achieving this solution. The computational models contribute to the analysis of water conservation, water transfer effects, and climate change. Agricultural producers. Research in Objectives 1 and 2 contribute analysis of water conservation and emission reduction management strategies for irrigated agricultural production. PROJECT MODIFICATIONS: Not relevant to this project.

Impacts
Agricultural production economics. The regional perennial crop model finds damped cycles to an optimal steady-state, although this takes a considerable length of time. Farmers borrow to fund the vineyard, then save in the later years of the vineyard life. Water demand is dynamic: it evolves over time as perennial age distribution and area evolve. Monte-Carlo analysis identifies the effects of climate change on production. Groundwater economics. Sustainability is widely discussed in water management but not formally defined. This work applies environmental macroeconomics: (a) sustainability requires joint analysis of both natural resource and physical capital stocks. (b) A declining resource stock is not a necessary indicator of non-sustainability, and (c) sustainability requires an appropriately specified objective. Sustainability here is intertemporal efficiency and intergenerational equity. Starting from a full aquifer, regional sustainability can be maintained with declining groundwater stocks with sufficient investment in manufacturing capital stocks to offset declining agricultural income as the aquifer is depleted. Analysis with financial capital also indicates that the standard present value criterion is problematic with imperfect capital markets as in low-income countries. Water transfers and climate change. The Australian water allocation model decomposes climate change impacts for three sub-basins under four possible future climate scenarios. Projected mean water supply reductions have a significant impact on cropping areas and management; water supply reliability is also influential as high-value perennials can only be planted with relatively secure water supplies. Salt effects are significant under severe climate change which limits salt leaching. Overall, the analysis finds significant climate change impacts and illustrates the multiple channels through which climate change can operate. Economic growth and natural resources. Questions addressed are disparity and sustainability of economic growth. Most economic literature emphasizes institutions and largely ignores natural resources in contrast to scientific literature which emphasizes agricultural productivity and natural resources, particularly energy. Much of the economic literature also utilizes production functions seemingly inconsistent with natural processes. As background, the work here first specifies an alternate representation of technology, and demonstrates that this alternate representation can be broadly consistent with U.S. growth data. The role of public capital and infrastructure is also identified in contrast to standard literature which emphasizes constant returns to scale and private sector investment. This model is then extended to consider agricultural productivity in development. Under standard assumptions, agricultural productivity does not have a particularly significant impact consistent with the literature. However, with public capital and infrastructure, then threshold effects and development traps are possible, and agricultural productivity can be critical to development in striking contrast to conventional economic theory.

Publications

  • Connor, J.D., K. Schwabe, D. King, K. Knapp. Irrigated agriculture and climate change: The influence of water supply variability and salinity on adaption. Ecological Economics 77(2012), pgs 149-157.


Progress 01/01/11 to 12/31/11

Outputs
OUTPUTS: Agricultural production economics: A dynamic programming model for field-level grape production was formulated. This model selects optimal water management and rotation time with dynamic biomass growth. A regional programming model for grape production with age-dynamics and borrowing/saving was also developed, and a climate change analysis of irrigated agriculture in a river basin was completed. The analysis allows for irrigation system investment and endogenous crop choice with probabilistic surface flows, and climate channels include mean water supply, water supply reliability, and salinity. Groundwater economics: Work progressed on a theoretical and computational analysis of groundwater and natural resource sustainability. The model combines agricultural production with both surface and groundwater flows, aquifer dynamics, and capital accumulation. The behavioral regimes are common property, efficiency, and sustainability where regional annual net benefits are constrained to be non-declining over time. Economic growth and natural resources: An extensive data set for population, economy, and natural resources was assembled for the U.S. over a 100 year period. Previous economic growth models are explicated and problems identified. An aggregate growth model was developed with alternate technology representation based on activity analysis and including economies of scale and infrastructure. This model is then extended to a second model with separate agricultural and manufacturing sectors. In both models, parametric conditions leading to growth or no-growth are characterized theoretically and computationally. An extensive set of computational experiments are performed to characterize model dynamics and to identify the quantitative impacts of parametric changes. Based on these results, a quantitative model is developed and compared to U.S. data over the 100 year period. Finally, this model is then used with counterfactual experiments to identify reasons for lack of development in some regions of the world. PARTICIPANTS: Kurt Schwabe, Associate Professor, Department of Environmental Sciences, University of California. Bradley Franklin, Graduate student, Department of Economics, University of California. Jeffrey Connors, CSIRO, Australia. TARGET AUDIENCES: Academic. Research in Objectives 1,3,and 5 is designed to contribute to fundamental knowledge of agricultural and natural resource economics and analytical methods. Objective 1 further develops mathematical and computational models for field-scale irrigated agricultural production, and investigates inverse estimation techniques for regional-scale analysis with land quality. Objective 3 develops a formal framework for analysis of groundwater sustainability, while Objective 5 analyzes the interrelation of agriculture and natural resources in economic growth and development. Policy, water agencies, and water districts. Research in Objectives 2 and 4 is directed towards policy analysis and formulation. Objective 2 demonstrates that salinity and drainage problems are solvable over decadal time scales and analyzes several different policy instruments for achieving this solution. The computational models contribute to the analysis of water conservation, water transfer effects, and climate change. Agricultural producers. Research in Objectives 1 and 2 contribute analysis of water conservation and emission reduction management strategies for irrigated agricultural production. PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.

Impacts
Agricultural production economics: (a) The field-level model is the first to give optimal water management and rotations for a perennial crop. This allows for carryover effects in which water stress in one year can impact yields in future years. (b) The regional perennial crop model finds damped cycles to an optimal steady-state, although this takes a considerable length of time. Farmers borrow to fund the vineyard, then save in the later years of the vineyard life. (c) The river basin model decomposes climate change impacts for three sub-basins under four possible future climate scenarios. Projected mean water supply reductions have a significant impact on cropping areas and management; water supply reliability is also influential as high-value perennials can only be planted with relatively secure water supplies. Salt effects are significant under severe climate change which limits salt leaching. Overall, the analysis finds significant climate change impacts and illustrates the multiple channels through which climate change can operate. Groundwater economics: Sustainability is widely discussed in water management. Although the term is rarely formally defined, it generally implies a steady-state resource system. The work here applies concepts from environmental macroeconomics: (a) sustainability requires joint analysis of both natural resource and physical capital stocks, it cannot be done for the natural resource stock alone. (b) A declining resource stock is not a necessary indicator of non-sustainability, and (c), sustainability requires an appropriately specified objective. Sustainability here is intertemporal efficiency and intergenerational equity, and implementation is demonstrated. Starting from a full aquifer, regional sustainability can be maintained with declining groundwater stocks with sufficient investment in capital to offset declining agricultural income as the aquifer is depleted. Economic growth and natural resources: Questions addressed are disparity and sustainability of economic growth. Most economic literature emphasizes institutions and largely ignores natural resources in contrast to scientific literature which emphasizes agricultural productivity and natural resources, particularly energy. Much of the economic literature on the second topic utilizes production functions seemingly inconsistent with natural processes. As background, the work here first specifies an alternate representation of technology, and demonstrates that this alternate representation can be broadly consistent with U.S. growth data. The role of public capital and infrastructure is also identified in contrast to standard literature which emphasizes constant returns to scale and private sector investment. This model is then extended to consider agricultural productivity in development. Under standard assumptions, agricultural productivity does not have a particularly significant impact consistent with the literature. However, with public capital and infrastructure, then threshold effects and development traps are possible, and agricultural productivity can be critical to development in striking contrast to conventional economic theory.

Publications

  • No publications reported this period


Progress 01/01/10 to 12/31/10

Outputs
OUTPUTS: Agricultural production economics. A dynamic programming model for crop rotations was formulated. This model selects crop choice given that previous crop choices influence current yields. An estimation procedure was devised, and the model applied to an extensive set of crop production data in Kern County to identify rotational effects on grower crop selection. This work was presented at an international conference. A regional programming model for irrigated agriculture in a river basin was developed to evaluate climate change impacts on irrigated agriculture. The model allows for irrigation system investment and endogenous crop choice with probabilistic surface flows. Climate impact channels include mean water supply, water supply reliability, and salt effects. The analysis is for 3 sub-basins in Australia, and the work was submitted for publication. Groundwater economics. Work progressed on a theoretical and computational model for groundwater and natural resource sustainability. The model combines agricultural production with both surface and groundwater flows, aquifer dynamics, and capital accumulation in the manufacturing sector. The model is solved under three regimes: common property (unregulated usage), efficiency, and sustainability where regional annual net benefits are constrained to be non-declining over time. The work was presented at an interdisciplinary conference. Economic growth and natural resources. An extensive data set for population, economy, and natural resources was assembled for the U.S. over a 100 year period. Previous economic growth models are explicated and problems identified. An aggregate growth model was developed with alternate technology representation based on activity analysis and including economies of scale and infrastructure. This model is then extended to a second model with separate agricultural and manufacturing sectors. In both models, parametric conditions leading to growth or no-growth are characterized theoretically and computationally. An extensive set of computational experiments are performed to characterize model dynamics and to identify the quantitative impacts of parametric changes. Based on these results, a quantitative model is developed and compared to U.S. data over the 100 year period. Finally, this model is then used with counterfactual experiments to identify reasons for lack of development in some regions of the world. PARTICIPANTS: Daya Muralidharan, former graduate student. Brad Franklin, graduate student. Jeff Connor, CSIRO director. Richard Howitt, UC Davis professor. Duncan MacEwan, graduate student. TARGET AUDIENCES: Academic. Research in Objectives 1,3,and 5 is designed to contribute to fundamental knowledge of agricultural and natural resource economics and analytical methods. Objective 1 further develops mathematical and computational models for field-scale irrigated agricultural production, and investigates inverse estimation techniques for regional-scale analysis with land quality. Objective 3 develops a formal framework for analysis of groundwater sustainability, while Objective 5 analyzes the interrelation of agriculture and natural resources in economic growth and development. Policy, water agencies, and water districts. Research in Objectives 2 and 4 is directed towards policy analysis and formulation. Objective 2 demonstrates that salinity and drainage problems are solvable over decadal time scales and analyzes several different policy instruments for achieving this solution. The computational models contribute to the analysis of water conservation, water transfer effects, and climate change. Agricultural producers. Research in Objectives 1 and 2 contribute analysis of water conservation and emission reduction management strategies for irrigated agricultural production. PROJECT MODIFICATIONS: Not relevant to this project.

Impacts
Agricultural production economics. (a) Crop rotations are not given much attention in agricultural economics; this work tests that implicit hypothesis. The model is an excellent fit to the data, provides a mechanistic partial explanation for observed cropping decisions, and demonstrates significant crop rotation effects. (b) The water allocation model decomposes climate change impacts for three sub-basins under four possible future climate scenarios. Projected mean water supply reductions have a significant impact on cropping areas and management; water supply reliability is also influential as high-value perennials can only be planted with relatively secure water supplies. Salt effects are significant under severe climate change which limits salt leaching. Overall, the analysis finds significant climate change impacts and illustrates the multiple channels through which climate change can operate. Groundwater economics. Sustainability is widely discussed in water management. Although the term is rarely formally defined, it generally implies a steady-state resource system. The work here applies concepts from environmental macroeconomics: (a) sustainability requires joint analysis of both natural resource and physical capital stocks, it cannot be done for the natural resource stock alone. (b) A declining resource stock is not a necessary indicator of non-sustainability, and (c), sustainability requires an appropriately specified objective. Sustainability here is intertemporal efficiency and intergenerational equity, and we demonstrate how this can be implemented. Starting from a full aquifer, regional sustainability can be maintained with declining groundwater stocks with sufficient investment in manufacturing capital stocks to offset declining agricultural income as the aquifer is depleted. Economic growth and natural resources. Questions addressed are disparity and sustainability of economic growth. Most economic literature emphasizes institutions and largely ignores natural resources in contrast to scientific literature which emphasizes agricultural productivity and natural resources, particularly energy. Much of the economic literature on the second topic utilizes production functions seemingly inconsistent with natural processes. As background, the work here first specifies an alternate representation of technology, and demonstrates that this alternate representation can be broadly consistent with U.S. growth data. The role of public capital and infrastructure is also identified in contrast to standard literature which emphasizes constant returns to scale and private sector investment. This model is then extended to consider agricultural productivity in development. Under standard assumptions, agricultural productivity does not have a particularly significant impact consistent with the literature. However, with public capital and infrastructure, then threshold effects and development traps are possible, and agricultural productivity can be critical to development in striking contrast to conventional economic theory.

Publications

  • No publications reported this period


Progress 01/01/09 to 12/31/09

Outputs
OUTPUTS: 1. The Muralidharan and Knapp (2009) spatial dynamic computer model of field-level water management was extended to include pre-irrigation, salinity, and state-dependent decision rules. Computer code was developed for estimating land quality distributions from Agricultural Commissioner data. 2. Previous work on salinity and drainage indicated that drainwater reuse was an economically effective mitigation strategy; however, that work assumed current salt concentrations. Computer simulations were carried out to identify the magnitude of possible salt concentration increases resulting from reuse. 3. Groundwater sustainability is being analyzed by jointly considering the resource stock as well as investment in physical capital which can continue to generate output and employment even with a declining resource stock. 4. Empirical data was gathered to support future work on the Imperial Valley. This data includes historical cropping patterns, prices and production costs. Water management data is generated from crop-water use studies. Formulation of the regional programming code and application to water transfers, Salton Sea issues, and climate change are to follow. 5. Dynamic general equilibrium analysis of economic growth with agricultural production was conducted. This allows for structural change in a developing economy over time, and investigates agricultural productivity as a determinant of economic growth conditions and rates. PARTICIPANTS: Brad Franklin. Graduate student in Economics, University of California. His dissertation research is part of Objective 1 of this project. TARGET AUDIENCES: 1. Academic audience. Research in Objectives 1,3,and 5 is designed to contribute to fundamental knowledge of agricultural and natural resource economics and analytical methods. Objective 1 further develops mathematical and computational models for field-scale irrigated agricultural production, and investigates inverse estimation techniques for regional-scale analysis with land quality. Objective 3 develops a formal framework for analysis of groundwater sustainability, while Objective 5 analyzes the interrelation of agriculture and natural resources in economic growth and development. 2. Policy and water agency audience. Research in Objectives 2 and 4 is directed towards policy analysis and formulation. Objective 2 demonstrates that salinity and drainage problems are solvable over decadal time scales and analyzes several different policy instruments for achieving this solution. The computational models contribute to the analysis of water conservation, water transfer effects, and climate change. 3. Agricultural producers. Research in Objectives 1 and 2 contribute analysis of water conservation and emission reduction management strategies for irrigated agricultural production. PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.

Impacts
1. The field-level work provides estimates of irrigation response to water scarcity, water prices, and emission charges. Costs of increased water conservation and pollution control are generally moderate at first, but then increase rapidly after some point. 2. The salinity and drainage research demonstrates considerable potential for drainwater reuse in conjunction with source control and evaporation ponds to solve Westside drainage problems. The results indicate substantial economic viability over several decades at least. While reuse will result in increasing water table salt concentrations over time, the rate of increase is small due to the large volume of receiving water relative to percolation flows. 3. The groundwater sustainability research provides a formal framework for sustainability analysis based on the economic growth literature. This proposes a very different and much more justified approach to sustainability than standard and widespread discussion which only consider the natural resource itself. Preliminary results indicate that groundwater-based economies in the San Joaquin valley can be sustainable even with declining natural resource levels when the broader regional economy and investment alternatives are considered. 4. The economic analysis considered to date generally finds that many resource conservation and environmental quality issues associated with irrigated agriculture can be solved by field-level management. This contrast with the more drastic changes in fallowing, cropping patterns, and irrigation systems proposed in some prominent economic studies. Additionally, well-known studies on agricultural climate change effects rely on statistical studies in contrast to the process-based studies of this project. 5. Research to date does not find agricultural productivity as an inevitable determinant of economic growth initiation. This is consistent with the existing economic literature on the subject, but somewhat in contrast to well-known, popular accounts. However, the research is still at a very early stage and does not consider a likely mechanism of interacting agricultural productivity and manufacturing technological structure.

Publications

  • Muralidharan,D., and Knapp,K.C. 2009. Spatial dynamics of water management in irrigated agriculture. Water Resources Research. 45(W05411):1=13.


Progress 01/01/08 to 12/31/08

Outputs
OUTPUTS: 1. Irrigation economics. Work was completed on a spatial dynamic optimization model for irrigation management. The model combines daily plant growth and soil moisture dynamics with field infiltration variability. This is optimized for applied water and timing, and used to analyze micro-response to water and drainage prices and irrigation investment. A literature survey of microeconomic models of agricultural water management in the context of salinity and drainage was also completed. This surveys work at plant, field, and farm/regional scales. 2. Regional agricultural production. Programming models can be used to develop science-based analysis of agricultural production; however, these models typically underestimate producer diversity, likely due to inadequate treatment of land quality. Work continues on developing analsis of regional agricultural production where land quality (implicit yields) is explicitly modeled. The model is calibrated by estimating land quality distributions from commonly available data on prices, costs, and observed regional acreage and yields. Theoretical models, statistical criteria, and estimation algorithms are being tested. 3. Salinity and drainage management. Upslope-downslope work was updated to reflect current prices and costs, algorithms were refined, and a draft manuscript revised. This model couples groundwater transport with agricultural production, and is solved for both common property and efficient management. Policy instruments that vary both spatially and temporally and are economically efficient are also computed. Previous research found that drainwater reuse on cotton can help reduce and eliminate drainage problems at relatively small cost to growers, but assumes a constant value for the water table salt concentration (10 dS/m). This work is being extended to allow increasing aquifer salt concentration with salt importation into the basin. 4. Groundwater management. Sustainable resource management is much discussed, but limited by a lack of quantitative policy analysis. Sustainable groundwater management is investigated by combining standard groundwater economic models with capital accumulation following the environmental macroeconomics literature. Capital is either financial capital (borrowing and saving), or development of a manufacturing sector with physical capital. A computer model has been developed and exploration of the system is currently in progress. 5. Agriculture and sustainability. A topic debated in the development literature is the extent to which agricultural productivity might lead to poverty traps. In this research, a new model for capital accumulation is developed based on activity analysis instead of the standard production function models. This work is also currently being extended to include an agricultural sector to investigate the poverty trap hypothesis. Dissemination of results. Most findings are reported in technical outlets. The outlet for the microeconomic water review is an edited book suitable for an interdisciplinary audience. Results on salinity and drainage were presented at an international conference in Australia. PARTICIPANTS: PI: Keith Knapp, Department of Environmental Sciences, University of California, Riverside. Collaborators: Kurt Schwabe, Department of Environmental Sciences, University of California, Riverside. Graduate student training: Daya Muralidharan, Department of Economics, University of California, Riverside. TARGET AUDIENCES: This research was designed to provide policy-relevant information for California water agencies, water district managers, and growers in drainage-impacted areas. Results were presented at an international salinity conference in Australia this year which was attended by a variety of academic and agency personnel. PROJECT MODIFICATIONS: No major changes in approach were made this year.

Impacts
1. Irrigation economics. The spatial dynamic optimization model for field-level water management and irrigation scheduling finds strong response to water and drainage prices when starting from relatively low values, even without crop or irrigation system investment. Relatively high prices are needed to induce investment in capital-intensive systems. The literature survey of microeconomic agricultural water management demonstrates the utility of both science-based studies and spatial dynamic models for economic analysis. The survey also finds that while much has been accomplished since formal quantitative studies began, much remains to be done. 2. Regional agricultural production. Inverse estimation of land quality parameters from observed data is a difficult problem due to the number of parameters involved. The work to date investigates a fixed point algorithm for solving this problem. This has been successful so far on test problems. 3. Salinity and drainage management. The upslope-downslope analysis finds that source control progressively increases with time and proximity to the drainage problem area; however, minimal upslope source control is efficient. The recent work on endogenous aquifer salt concentration suggests that the previous static results are robust and little changed upon including endogenous salt concentration. This is because salt concentration evolves relatively slowly due to the relatively large receiving volume relative to salt inflows. Overall, the impact of these findings is that the salinity and drainage problem is solvable over intermediate time horizons, and that a primary biophysical mechanism for accomplishing this is drainwater reuse. 4. Groundwater management. The groundwater work establishes a rigorous foundation for sustainability analysis by incorporating concepts from the environmental macroeconomic literature. Findings are that while income from groundwater activities is necessarily declining as water tables fall, consumption need not be falling when the possibility of saving is accounted for. 5. Agriculture and sustainability. The activity analysis model of capital accumulation yields behavior more consistent with observed data than the standard production function models in that it exhibits periods of exponential growth. It also leads to the possibility of no growth depending on parameter values in contrast to standard work. Computer models with agricultural and manufacturing sectors exhibit a variety of behavior depending on the structure of production. Standard assumptions lead to declining growth rates and steady-states as agricultural productivity declines, while non-convex production structures can lead to poverty traps. Impacts and evaluation: This research provides an economic analysis of drainwater reuse utilizing scientific research on this issue. Several water districts have projects underway to further investigate this issue in a practical setting. Project resources contributed to graduate student support essential to the agricultural production and groundwater research.

Publications

  • Knapp, K.C., and K.A. Schwabe. 2008. Spatial dynamics of water and nitrogen management in irrigated agriculture. American Journal of Agricultural Economics, 90:524-539. Technical appendix: http//agecon.lib.umn.edu.


Progress 01/01/07 to 12/31/07

Outputs
OUTPUTS: 1. Irrigation economics. Work progressed on spatial dynamic optimization models for field-level water management. The first model combines daily plant growth and soil moisture dynamics with field-level infiltration variability. This is optimized for applied water depth and timing, and used to analyze micro-response to water and drainage prices and irrigation investment. Analysis also began on a spatial dynamic model for interseasonal soil salinity management. This includes spatially variable soil moisture and salinity in response to water quantity and salt concentration, and crop ET and yields responding to moisture and salinity. 2. Regional agricultural production. Regional programming models can be used to develop science-based analysis of agricultural production, natural resources and the environment. However, these models typically underestimate producer diversity, likely due to inadequate treatment of land quality. This research extends the Howitt PMP methodology to a model of regional agricultural production where land quality (defined as implicit yields) is explicitly modeled. The model is calibrated by estimating land quality distributions from commonly available data on output prices, production costs, and observed regional acreage and yields. Theoretical models, statistical criteria, and estimation algorithms are being tested. 3. Salinity and drainage management. Upslope-downslope work was updated to reflect current prices and costs, algorithms were refined, and a draft manuscript revised. This couples a groundwater transport with agricultural production. Previous research found that drainwater reuse on cotton can help reduce and eliminate drainage problems at relatively small cost to growers, but assumes a constant value for the water table salt concentration (10 dS/m). This work is being extended to allow salt concentration of the aquifer to increase as salts are imported into the basin and no salt exportation occurs. Two draft book chapters have been prepared summarizing salinity/drainage economics research. 4. Groundwater management. Sustainable resource management is much discussed, but limited by a lack of quantitative policy analysis. Sustainable groundwater management is investigated by combining standard groundwater economic models with capital accumulation following the environmental macroeconomics literature. Capital is either financial capital (borrowing and saving), or development of a manufacturing sector with physical capital. A computer model has been developed and exploration of the system is currently in progress. PARTICIPANTS: PI: Keith Knapp, Department of Environmental Sciences, University of California, Riverside. Collaborators: Ken Baerenklau and Kurt Schwable, Department of Environmental Sciences, Riverside. Graduate Student Training: Daya Muralidharan, Department of Economics, University of California, Riverside. TARGET AUDIENCES: Environmental economics and agricultural scientists in academic and agency environments. Regulatory agencies charged with water quality policy in California and other areas with irrigated agriculture. PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.

Impacts
1. Irrigation economics. The results demonstrate strong management response to water and drainage prices when starting from relatively low values, even without crop or irrigation system investment. Relatively high prices are needed to induce investment from traditional systems. Spatial dynamics are also analyzed for interseasonal water and nitrogen management. There is again considerable response to irrigation scarcity, and nitrate emission damages can be achieved at relatively low cost. 3. Salinity and drainage management. The upslope-downslope analysis finds that source control progressively increases with time and proximity to the drainage problem area; however, minimal upslope source control is efficient. The dynamic drainwater reuse model shows that the previous static results for drainwater management are little changed as salt concentration evolves relatively slowly due to the relatively large receiving volume relative to salt inflows. 4. Groundwater management. Starting from a high water table,groundwater withdrawals and income must eventually decline over time or reach a time-averaged constant level. However, with financial asset accumulation, then consumption can increase over time.

Publications

  • Baerenklau, K.A., and Knapp, K.C. 2007. Dynamics of agricultural technology adoption: age structure, reversibility, and uncertainty, American Journal of Agricultural Economics, 89(1):190-201.


Progress 01/01/06 to 12/31/06

Outputs
1. Irrigation economics. Work progressed on a spatial dynamic model of field water management. This combines a daily model of plant growth based on plant-water response and soil physics with field-level infiltration variability. This is incorporated into an optimization model for applied water depth and timing, and used to analyze micro-response to water and drainage prices and irrigation investment. The findings to date suggest strong management response to water and drainage prices when starting from relatively low values. This is achieved through water management without crop or irrigation system investment. In contrast, fairly large prices are needed to induce irrigation investment from traditional systems. A spatial dynamic optimization model is also developed with irrigation and fertilizer for interseasonal analysis of water and nitrogen conservation, and drainage and nitrate emission reduction. Again, we find that considerable response to irrigation scarcity and nitrate emission damages can be achieved at relatively low cost, and that incorporating spatial variability is key to the analysis. 2. Regional programming models can be used to develop science-based analysis of agricultural production, natural resources and the environment. However, these models typically underestimate producer diversity, likely due to inadequate treatment of land quality. This research extends the Howitt PMP methodology to a model of regional agricultural production where land quality (defined as implicit yields) is explicitly modeled. The model is calibrated by estimating land quality distributions from commonly available data on output prices, production costs, and observed regional acreage and yields. To this point we have developed theoretical models to be estimated, and statistical fitting criteria. Current research evaluates estimation algorithms. 3. Previous research investigated management strategies for closed drainage basins including source control, drainwater reuse, crop switching, and irrigation investment, and evaporation ponds. While all strategies are used, the previous analysis found that drainwater reuse on cotton can reduce and eliminate drainage problems at relatively small cost. That analysis assumed a constant water table salt concentration (10 dS/m), although some sensitivity analysis was done. However, over intermediate and long-run time scales, the salt concentration of the aquifer in a closed drainage basin can be expected to increase as salts are imported into the basin, reuse just recirculates salts (under the assumed steady-state rootzone conditions), and no salt exportation occurs. This alters management strategies as reuse becomes increasingly less attractive. Thus the efficient regional management problem becomes a dynamic optimization problem. We developed a conceptual and computational model to study this system. Current research efforts are to empirically specify the model. This includes production function estimation in conjunction with spatially-distributed infiltration coefficients, as well as economic data including crop prices, production costs, water costs, and energy and evaporation pond costs.

Impacts
Bioeconomic models of agricultural production are developed and applied to resource conservation and environmental quality, and policy analysis. Results indicate considerable capacity for conservation at relatively low impacts on agricultural production. In-basin drainage management appears economically feasible over time scales of several decades.

Publications

  • Schwabe,K., Kan,I., Knapp, K.C. 2006. Integrated drainwater management in irrigated agriculture. American Journal of Agricultural Economics, 88(1):February, pgs 133-149.
  • Knapp, K.C., Baerenklau,K. 2006. Groundwater quantity and quality management: agricultural production and aquifer salinization over long time scales. Journal of Agricultural and Resource Economics, 31(3):December, pgs 616-641.


Progress 01/01/05 to 12/31/05

Outputs
1. Several field-scale production economics models are being developed. The first is for water conservation and drainage control using a spatial dynamics model of crop-water use over the season, while the second considers water and nitrogen management over a sequence of years. We find substantial potential for water conservation and pollutant control at relatively low cost to growers starting from currently observed water and nitrogen prices in specific areas of California. A third analysis demonstrates that age-distribution effects can dominate irrigation technology adoption decisions as much or more than traditional parameters investigated in the literature. 2. Work was completed on a regional analysis of salinity and drainage management. The model selects efficient combinations of source control, drainwater reuse, and evaporation ponds to maximize net benefits from agricultural production while maintaining hydrologic balance in the region. Theory demonstrates that general equilibrium effects can reverse standard partial equilibrium results. Empirical results are that drainwater reuse with modest source control and evaporation ponds stabilizes the water table with relatively small losses in agricultural income. Research in progress finds that this likely holds over several decades even with dynamic salt buildup in the underlying aquifer, as salt emissions from agriculture are relatively small compared to the underlying aquifer. 3. In groundwater basins that import irrigation water but with little external drainage, aquifer salinity can increase over time with consequent adverse impacts on agriculture. We are finishing up previous research on saline aquifers with endogenous water table height and salt concentrations. Starting from a completely full, low-salinity aquifer, the results demonstrate three eras: water table drawdown with increasing salinity, a gradual rise in the water table again with increasing salinity, and eventual convergence to a steady-state. For the empirical setting here, this process is quite extended, indicating in part that this mechanism does not necessarily lead to problems on shorter time scales. Existing problems are likely due to alternate mechanisms, such parent material of marine origin. The results do indicate significantly higher management benefits than previous research, but this appears due to reasons other than salinity. 4. Research was completed for a study of reservoir operator preferences. The results demonstrate that the relatively new concept of recursive utility better characterizes operator decisions than traditional expected utility. We also find a significant level of intertemporal substitution but relatively little risk aversion. 5. Work continues on analysis of shifting cultivation in the tropics. This topic is of interest for improving subsistence household well-being, analyzing price effects, agricultural policies and infrastructure, and deforestation/global warming. A spatial dynamic optimization model has been developed and sensitivity of rotation lengths is investigated. The next step is finalizing data and manuscript preparation.

Impacts
Large portions of the westside San Joaquin valley are plagued by high water tables with no external drainage. This research demonstrates that the problem can be solved over several decades via drainwater reuse with minimal source control and evaporation ponds. The computed loss in agricultural income compared to full external drains is small while still maintaining hydrologic balance.

Publications

  • Howitt, R.E., S. Msangi, A. Reynaud, K.C. Knapp. 2005. Estimating intertemporal preferences for natural resource allocation. American Journal of Agricultural Economics, 87(4):969-983.