Adaptation to Water Scarcity in Irrigated Agriculture in California

Abstract:

How much can societies adapt to climate change? I provide evidence on this question by studying surface water, a resource that is projected to become scarcer in much of the world yet is critical to sectors such as irrigated agriculture. To identify adaptation, I compare the long-run and short-run effects of water scarcity on agriculture, which I estimate using institutional variation in water allocation in California. First, I estimate long-run effects using spatial discontinuities in average water supplies at the borders between neighboring water utilities, where farmland is otherwise similar. Then, I estimate short-run effects using weather-driven fluctuations in water supplies from year to year. Using high-resolution satellite data on land use, I find that short-run water scarcity reduces crop area and crop revenue (as predicted by crop choices). Long-run water scarcity shifts land-use patterns in different ways but reduces predicted crop revenue by 85 percent as much as in the short run, implying adaptation is limited. Absent new investments or policy changes, future declines in surface water supplies are likely to notably reduce the land area and output of agriculture.