Abstract
AbstractThis article examines the economic impacts of policy alternatives for addressing allocative inefficiencies among agricultural, urban, and environmental uses of federal water. The Central Valley Project Improvement Act, composed of multiple incentive‐based and command‐and‐control policies, forms the context for this analysis. Estimated multi‐output agricultural revenue functions and urban water demand functions are incorporated into a nonlinear programming model designed to predict changes in water use, returns to agriculture, and urban consumer surplus. Results suggest that analysis that does not explicitly model policy instruments implemented at sub‐optimal levels and, as part of a package of reforms, could over‐ or underestimate the costs, benefits, and effectiveness of each policy instrument.
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