Essays on the Economics of Climate Change, Water, and Agriculture

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Virginia Tech

In an era of global-scale climate change, agricultural production faces a unique challenge due to its reliance on stochastic natural endowments, including temperature, precipitation, and water availability for irrigation. This dissertation presents a series of essays to examine how agricultural producers react and adapt to challenges presented by climate change and scarce irrigation water allocated through the prior appropriation doctrine. The dissertation approaches the problem from three distinct perspectives: institutional differences, climate and water availability, as well as producers' expectation on future endowments.

Chapter 2 presents an institutional perspective, in which I investigate how different water allocation mechanisms within the prior appropriation doctrine result in differences in producers' crop allocation decisions. I find that water users in irrigation districts are able to plant more water-intensive crops than farmers outside irrigation districts.

Chapter 3 presents the interaction between nature and human systems, in which I examine how the physiological complementarity of temperature and water availability diffuses from crop yield (at the intensive margin) to crop allocation strategies (at the extensive margin). Using a theoretical model I show that the observed complementarity reflects a combination of two mechanisms: yield impact through physiological complementarity, and adaptation response through shifting crop allocation patterns. Using an empirical model, I find that farmers adapt to changing climate conditions by growing more profitable crop mixes when presented with more growing degree-days (GDD), precipitation and groundwater access.

Chapter 4 presents a behavioral perspective, in which I test how producers' expectation formation processes lead to short term over-adjustments to weather and water availability fluctuations. Using a fixed-effect regression on lagged weather and water realizations, I find that agricultural producers engage in a combination of cognitive biases, including the availability heuristic and the reinforcement strategy. Adopting these alternative learning mechanisms causes farmers to significantly over-react to more recent fluctuations in weather and water availability when making ex ante acreage and crop allocation decisions.

Climate Change, Water Availability, Prior Appropriation, Agricultural Adaptation