Do Environmental Markets Improve on Open Access? Evidence from California Groundwater Rights
Environmental markets are widely prescribed as an alternative to open-access regimes for natural resources. We develop a model of dynamic groundwater extraction to demonstrate how a spatial regression discontinuity design that exploits a spatially-incomplete market for groundwater rights recovers a lower bound on the market’s net beneﬁt. We apply this estimator to a major aquifer in water-scarce southern California and ﬁnd that a groundwater market generated substantial net beneﬁts, as capitalized in land values. Heterogeneity analyses point to gains arising in part from rights trading, enabling more eﬃcient water use across sectors. Additional ﬁndings suggest the market increased groundwater levels.
This paper was previously titled “Do Property Rights Alleviate the Problem of the Commons? Evidence from California Groundwater Rights.” We acknowledge helpful comments from Max Auﬀhammer, Spencer Banzhaf, Lint Barrage, Otavio Bartalotti, Youssef Benzarti, Chris Costello, Robert Heilmayr, Josh Hill, Matt Kahn, Bryan Leonard, Gary Libecap, Heather Royer, Randall Rucker, Doug Steigerwald, Walter Thurman, Gonzalo Vazquez-Bare, Randy Walsh, Paige Weber, Jinhua Zhao, and participants at the NBER EEE Summer Institute, and at other seminars and conferences. We thank Chris Free, Tracey Mangin, Gokce Sencan, and Vincent Thivierge for assistance with data. This research was funded by a grant through the UC Oﬃce of the President: MR-15-328650, Legal and Economic Data and Analysis of Environmental Markets and supported in part by PERC. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Andrew B. Ayres & Kyle C. Meng & Andrew J. Plantinga, 2021. "Do Environmental Markets Improve on Open Access? Evidence from California Groundwater Rights," Journal of Political Economy, vol 129(10), pages 2817-2860.