Water supply reliability and adoption of conservation technology: Applications to California agriculture

The first essay defines reliability in terms of price risk and examines the influence of factor price risk on the adoption of conservation technology. This essay contributes to the literature by modeling the effect of water supply reliability on investment in water-conserving irrigation technologies. The model is unique in that the level of technology adoption depends on the crop choice. The model developed in this essay also differs from previous work in that supply reliability is modeled in terms of water supply price risk, and characterizes water supply risk as a stochastic dominating shift from a more risky distribution to a less risky distribution. This approach is consistent with water resource allocation in the western United States.; The second essay analyzes adoption of water-conserving irrigation technologies and crop choice as simultaneous decisions. The empirical literature has modeled crop choice as an exogenous variable, however, empirical and anecdotal evidence suggests that crop choice is affected by the same factors as technology choice. This essay finds statistical evidence that the technology and crop choice are simultaneous decisions.; The final essay develops a method of valuing improvements in water supply reliability from government water projects by measuring the effect of supply reliability on agricultural profits. Traditional cost-benefit analysis of projects assumes that crop production is fixed. As shown in the first two essays of this dissertation, changes in water supply reliability can have a significant effect on production choice. Thus, traditional project valuation methods underestimate the value of reliability. One of the main features of the valuation methodology developed in this essay is that production choice changes with changes in water supply reliability, thus the valuation of water supply reliability accounts for the effects of reliability on production choice. The farm-level investment choice also accounts for supplemental water supplies typically available to agricultural producers in the West, such as groundwater supplies and water markets. Theoretical results define conditions under which changes in the distribution of project water supplies increase expected profits. In a case study of the San Luis & Delta-Mendota Water Authority, this essay estimates the willingness of agricultural producers to pay for arbitrary changes in the variance of Central Valley Project water supplies. (Abstract shortened by UMI.)...