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Water pollution poses important challenges worldwide. In developed countries, most of the challenges from water pollution have to do with recreational and amenity use of water, as well as the negative impact on ecosystems. For instance, in the United States, dead zones caused by nutrient pollution occur annually in many major coastal waters, including Tampa Bay, the Gulf of Mexico, Chesapeake Bay, and coastal North Carolina, causing large welfare effects in these regions. In developed countries like the United States, the aging drinking water infrastructure, such as the presence of lead pipes, is also a threat to human health. In developing countries, water pollution has a pronounced impact on human health given that safe drinking water is limited in many areas. Economic analysis plays a critical role in the making of environmental policy. In designing and assessing a water pollution control policy, it is important to understand the costs and benefits of such policies and be able to empirically evaluate their effectiveness. However, there are still important challenges in understanding the costs and benefits of water pollution control policies. Water quality improvement is a non-market good, so no direct price signal is available for valuing it. To overcome this problem, economists have developed several non-market valuation techniques, such as hedonic property models and recreation demand models. Each valuation method only captures a piece of the price consumers are willing to pay to improve water quality. This dissertation comprises three papers that answer some critical questions on the economic analysis of water pollution policies. In the first paper, I estimate the marginal willingness-to-pay of homeowners for water quality improvement in Florida,using a two-stage model that combines the recreational value and amenity value of both local and regional water quality improvement. This paper, which focuses on nutrient pollution problems related to the dead zones discussed earlier, generates a more comprehensive estimate of the benefits of water pollution reduction than that used in prior work. In the second paper, I estimate an important cost of water pollution by investigating the short-run and long-run educational impacts of lead pollution in drinking water. Using data from Texas, I find that drinking water lead exposure at birth has a significant negative impact on both 3rd-grade standardized test scores and the high school graduation rate. While many prior papers in environmental economics quantify short-run and long-run human capital costs of air pollution, this paper is one of only a few to do so for an important water pollution problem. Switching to the third paper, I examine the existing literature on the policy instruments that can be used to reduce water pollution. With a focus on developing countries, I describe the empirical evidence on the effectiveness of various water pollution control policies, identify the challenges for implementing and assessing such policies, and provide recommendations for future research
This dissertation includes three chapters on the economics of climate, water resources, agricultural production, and conflict. Chapter one is an introduction. In chapter two I provide an analysis of the impact of exposure to temperature on returns to irrigated and nonirrigated cropland. Chapter three is a theoretical approach to understand the economic implications of the forfeiture of water rights for nonuse. Chapter four looks at the relationship between drought, conflict, and governance using a disaggregated spatial analysis.Chapter two is on temperature effects on snowpack-dependent surfacewater irrigated production systems in the western US. Irrigated production in that region is characterized by a diverse mix of high value crops, so producers may have more of an ability to adapt to hotter temperatures. I focus on county rental prices for irrigated and nonirrigated cropland and find that economic returns to cropland begin to decrease starting at about 25℗ʻC for irrigated acres and 20℗ʻC for nonirrigated acres.Chapter three covers the economic history that led to the creation of forfeiture policies for the nonuse of surface water rights in the western US. I develop a theory of water rights under prior appropriations with forfeiture and use it to examine why forfeiture policies were adopted in all western states that allocate water via prior appropriation. Forfeiture reduced risk to junior water rights holders and limited speculative water claims, but did so at the cost of increased transaction costs when trading water rights. While these were small when remaining water resources were available to be claimed, they are significantly more costly when all water in a basin has been allocated.In chapter four I combine a spatiotemporal grid of drought and geolocated conflict with several measures of governance characteristics to examine how governance mediates the relationship between drought and conflict. I find little evidence of a relationship between drought and conflict in Africa and Latin and South America. In countries that are more democratic or in which doing business is easier, an increase in drought reduces the likelihood of riot incidence. Other governance measures have no discernible effect.
Finally, in the third chapter I explore differences in Bureau of Reclamation (BOR) water management across its projects. BOR delivers water to farmers in Western states based on long-term contracts with irrigation districts that specify how much land can be irrigated, the quantity of water allotted per acre, and terms of payment. There is variation across Reclamation projects in terms of rights ownership, water allocation, and the ability to transfer water. These areas of institutional variation affect the security of farmers' claims to water, and security of rights in turn affects investment decisions, crop choice, and the value of water rights. This paper documents water management across five of the largest BOR irrigation projects and evaluates the implications of the variation.
This thesis studies three questions in the economics of water resource management. Chapter 1 estimates the economic gains available from greater use of large-scale water markets in California. I develop a revealed-preference empirical approach that exploits observed choices in the existing water market, and I apply it to comprehensive new data on California’s water economy. This approach overcomes the challenge posed by transaction costs, which insert an unobservable wedge between observed prices and marginal valuations. First, I directly estimate transaction costs and use them to recover equilibrium marginal valuations. Then, I use supply shocks to estimate price elasticities of demand, which govern how marginal valuations vary with quantity. I find even a relatively modest market scenario would create additional benefits of $480 million per year, which can be weighed against both the benefits of existing market restrictions and the setup costs of larger-scale markets. Chapter 2 estimates the possible costs of industrial water pollution to agriculture in India, focusing on 63 industrial sites identified by the central government as “severely polluted.” I exploit the spatial discontinuity in pollution concentrations that these sites generate along a river. First, I show that these sites do in fact coincide with a large, discontinuous rise in pollutant concentrations in the nearest river. Then, I find some evidence that agricultural revenues may be substantially lower in districts immediately downstream of polluting sites, relative to districts immediately upstream of the same site in the same year. These results suggest that damages to agriculture could represent a major cost of water pollution. Chapter 3, co-authored with Ariel Zucker, presents an experimental protocol for a project that pays smallholder farmers in India to reduce their consumption of groundwater. This project will test the effectiveness of payments for voluntary conservation – a policy instrument that may be able to sidestep regulatory constraints common in developing countries. It will also measure the price response of demand for groundwater in irrigated agriculture, a key input to many possible reforms. Evidence from a pilot suggests that the program may have reduced groundwater pumping by a large amount, though confidence intervals are wide.
This volume brings together a number of prominent economic studies all of which deal with key water quality issues. The studies focus on the economic aspects of water quality including identifying the polluters' actions and incentives, designing and comparing control mechanisms, analyzing the costs and benefits of water quality programmes, and finally managing transboundary water quality. They all make recommendations for improving water quality through changing incentives, programmes and/or policies.