Water Market Participation and Agricultural Land Values

Abstract

Policies that improve drought resilience have heterogenous effects on agricultural land values. We examine the value of surface water transfers and groundwater resources in a hedonic analysis of agricultural parcels in California. We find that parcels in irrigation districts, that engage in inter-basin surface water transfers, experience increase in value in subsequent years, but the gains are short-lived and unevenly distributed. Value of groundwater stock is higher in parcels outside irrigation districts. We also find that policies to restrict groundwater substitution-based transfers, that aimed to reduce groundwater open-access externalities, have not been a deterrent against transfers in all areas.