Impacts of intertemporal arbitrage on resource depletion: Evidence from Multi-Year Flex Accounts in Kansas
- Sponsor
- Department of Agricultural and Consumer Economics
- Speaker
- Micah Cameron-Harp, Assistant Professor, Kansas State University
- Views
- 8
- Originating Calendar
- ACE Seminars
Friday, September 11 – Micah Cameron-Harp, Assistant Professor, Kansas State University
Title: "Intertemporal Arbitrage in Groundwater Extraction: Evidence from Multi-year Flex Accounts in Kansas"
Abstract: "Multi-year flex accounts (MYFAs) allow Kansas irrigators to replace standard annual water rights with cumulative five-year allocations. While MYFAs were designed to increase efficiency, I use a two-period stochastic model to demonstrate how the intertemporal arbitrage opportunities they provide introduce a new incentive for conservation: the option value of unused allocation in future growing seasons. I also use my theoretical model to illustrate the rainfall conditions when this option value is largest and most likely to result in conservation. I then test these predictions by applying a difference-in-differences identification strategy to groundwater withdrawal data. I find that MYFA participation reduces groundwater withdrawals by roughly 12 percent on average, with precipitation patterns at the time of enrollment determining the direction and magnitude of the effect. Taken together, these results suggest that allocation flexibility can advance conservation goals provided adequate safeguards exist to mitigate externalities caused by concentrated pumping behavior."
Bio: "Micah Cameron-Harp is an Assistant Professor in the Department of Agricultural Economics at Kansas State University. His research and extension efforts focus on the interplay between systems of agricultural production and the natural resource base they rely on. He has published on the impact of producers adopting more efficient irrigation technologies, design of payment for ecosystem services programs, and the effects of severe weather on agricultural production risk. Much of his current work focuses on the management of water resources in Kansas, especially in the western portion of the state where groundwater resources are under the greatest strain.”