Left in the Dust? The Agricultural and Environmental Costs of Rural-Urban Water Sales

• Departmental Seminar

Date and Location

Thursday, January 26, 2023, 10:30 AM - 12:00 PM
ARE Library Conference Room, 4101 Social Sciences and Humanities

Abstract

Growing urban populations and shifting precipitation patterns under a changing climate motivate the flexible use of markets to reallocate water in arid regions. Opponents of these transfers refer derisively to the programs as “buy-and-dry” because of their reductions in agricultural output and negative environmental externalities. We build on the trade literature to develop a general equilibrium water trade model that demonstrates the relative effect of free trade in water under an initial fallow-transfer program and then later under an unrestricted-transfer program. We test the model predictions using synthetic control and difference-in-difference approaches. Consistent with the model, we find that under the fallow-transfer policy, agricultural acreage declined, with some evidence of decreases in agricultural labor employment. Subsequently, as the fallowing program was phased out, less water remained in the system, and dust-related air pollutants, PM10 and PM2.5, increased. Placebo non-dust air pollutants, Ozone and NO2, did not see corresponding increases. We discuss the magnitude and incidence of the policy costs relative to the magnitude of the overall water sale. The work provides a description of the pathways by which distributional issues related to trade feed back into policy choices and the distribution of environmental costs.