Where's the salt? A spatial hedonic analysis of the value of groundwater to irrigated agriculture

Abstract

Groundwater provides many valuable services to society, especially as a source of irrigation water. However, over-extraction and degradation threaten the ability of many groundwater systems to continue to provide such valuable services to society. As governments consider the costs and potential policy adjustments to address this issue, information on the benefits of maintaining these resources, or the damages associated with further degradation, can be helpful. Reported results from hedonic methods that have estimated the potential benefits of groundwater to irrigated agriculture, though, are rather mixed. While there are a number of reasons such disparities might arise across studies, a significant factor may be related to the quality of the groundwater, a somewhat surprisingly overlooked factor in these studies. The objective of this paper is to highlight the role of groundwater quality, and in particular salinity, in influencing the estimated value of groundwater to irrigated agriculture, using the hedonic valuation approach. Using a rich data set of parcel-level characteristics and market values for irrigated agricultural land located in California's Central Valley — an irrigation-intensive region with significant heterogeneity in both groundwater depth and salinity — we find that failure to include salinity as an argument explaining land values can lead to poor assessments as to the marginal value of the groundwater. Furthermore, we highlight the importance of accounting for the non-separability between groundwater depth, groundwater quality, and land values by showing how the marginal value of changes in groundwater and salinity are influenced by one another. Damages associated with projected increases in groundwater salinity by the year 2030 are estimated also.