Abstract
This article explores the environmental and market determinants of irrigation management in a five-state Great Lakes region. We found evidence that corn, soybean, and potato irrigators respond to the cost of water at the intensive margin. Evidence of a water-cost effect at the extensive margin was mixed. This article is unique in its geographic focus and its consideration of various temperature effects. We found evidence of a long-run average temperature effect on crop acreage allocation decisions and a short-run extreme heat effect on water application rates.
Highlights
A significant body of research explores the effects of climate change on agricultural yields
This study introduces concerns about irrigation water demand and water availability in the Great Lakes Region of the U.S
Results of the analysis suggest important implications related to climate and weather effects and to water price effects
Summary
A significant body of research explores the effects of climate change on agricultural yields. Firm-level average cost of irrigation water was calculated as the total annual energy expenditures for pumping, E, divided by the total number of acre inches applied (calculated by summing the product of irrigated acreage, n, and water application, w, over m crops). In the water application estimation, a variable indicating same-year, July price was used to measure firm expectations at the time irrigation decisions are made. To address the measurement error in the numerator of the equation for b, firms above the 95th percentile and below the 5th percentile for average cost of water, b, were removed from the sample This change had the expected effect; the magnitude of the estimated coefficient on b increased due to the reduction of attenuation bias from measurement error.
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