Resource Pressures and the Role of Markets: Issues and Policy Problems

• Agricultural Economics Workshop

Date and Location

Tuesday, October 21, 2014, 4:10 PM - 5:30 PM
ARE Conference Room, 2102 Social Sciences and Humanities

Abstract

The ongoing drought in California has illustrated that certain key natural resources – such as groundwater – are key for providing a ‘buffer’ to the agricultural sector, as it faces cuts in surface water deliveries and ongoing decreases in supply reliability. Attention has now come back to the lingering problems of regulation and management of the underlying aquifers that will continue to be drawn upon by the agricultural sector, as it struggles to adapt to the ongoing fluctuations in the hydrological regime. As some look to the increasing role that markets – such as those for surface water allocation – will need to play in California’s future, the underlying resource management problems cannot be overlooked, as they are inextricably linked to surface water flows and contribute to the ‘third party’ effects that surface water transfers might impose on other users in the basin. These effects – while disputed in some cases – cannot be ignored in the political reality of California’s water economy, and have to be accounted for by analysts and system operators in the design of sound policies for the state.

In this paper, we explore the implications of sub-optimal management regimes in the market-based transfers of resources like water, and show the linkage to third-party effects and other related trade-resource problems. We draw upon an example from California, and discuss how those lessons translate to other regions like China and India, whose agricultural sectors are also highly reliant upon poorly-managed groundwater resources. Examples from livestock and fisheries management are used as an illustration of how markets might intersect with the ecosystem dynamics of these sectors and how they are managed, and use the observed similarities and differences to point to interesting directions for future research.