My broad research interests are in the areas of environmental and natural resource economics, public policy, welfare economics, and health. I am particularly interested in water economics and in topics related to the economic value of water and water scarcity management, including resource reallocation using market mechanisms, adaptation to climate change, and the analysis of water law and its impact upon the efficiency of water rights markets.
My dissertation focuses on the analysis of water rights trading in the western U.S. and the role of water rights markets in adapting to the impacts of climate change on the water supply. I seek to understand whether these markets can be an effective instrument in managing varying water supply resources in the western U.S. I examine whether water rights markets in the U.S. are efficient and compare them to other natural resource markets. In addition, I measure the welfare gains from transferring water to different uses and assess whether these gains are higher or lower under water stress. Finally, I identify existing barriers to efficient water rights trading by analyzing the institutional characteristics of various water markets.
In my job market paper, “Price efficiency in U.S water rights markets”, I explore the problem of water supply shortages caused by changes in climate. Permanent and temporary water rights transfers have been increasingly seen as a way to mitigate the problem related to water resource scarcity and variability. However, the ability of market-based instruments to efficiently reallocate water rights to the highest value uses has been questionable due to the heterogeneity in water rights institutions leading to different water rights pricing mechanisms across markets. To determine how well existing markets will be able to respond to greater water scarcity, I assess the efficiency of existing water transfers by estimating a financial asset pricing model to U.S. water rights markets, and compare these results to the efficiency of other natural resource markets. Given that the majority of current water rights markets in the U.S. are informal, high in transaction costs, and heterogeneous within and across states, I do not expect asset pricing theory to completely explain the large variation in prices across markets. The goal is to determine what portion of the pricing variation can be explained by arbitrage theory and what portion should be attributed to expectations about future conditions. My results suggest that asset pricing theory holds: a permanent water rights price is positively related to an increase in the one-year lease price and a decrease in the real interest rate. The empirical findings confirm that water rights markets are more efficient when they are better defined and more active; however, water rights markets are less efficient than individual tradable quota markets in New Zealand fisheries.
In this line of research, I co-authored (with S. Olmstead and K. Fisher-Vanden) an editorial, “Climate change and water resources: some adaptation tools and their limits”, which was published in the Journal of Water Resources Planning and Management (2016).
My second working paper, “Water markets: Are gains from trade higher or lower under water stress?”, focuses on welfare gains from reallocating water rights in the semi-arid western U.S. by employing market-based mechanisms. Due to a significant difference in the marginal value of water between the agricultural and urban sectors, the potential gains from trading water rights between the two sectors are significant. However, the ability of water markets to reduce economic losses due to the increases in water scarcity and variability remains unclear. On the one hand, water scarcity might cause markets to emerge and function more efficiently; on the other hand, water shortages could reduce the potential gains from trade, thereby reducing the incentive to develop well-functioning markets. To understand how welfare is impacted by the inter-sectoral water rights trading under conditions of varying water resource availability, I estimate the change in welfare from historical water transfers (1990-2010) between the agricultural and urban sectors in the 12 western states under drier and wetter weather conditions, which allows me to test whether the gains from trade are larger under the higher or lower water supply. Findings suggest that these gains are higher when the water supply is less stressed ($6.4 billion) as opposed to ($2 billion) when water is scarcer. To confirm the importance of water trading, the estimation results of the 25% rationing policy scenario suggest that the welfare losses associated with this policy are 70% smaller when this policy is combined with the inter-sectoral water transfers compared to the decrease in welfare if the inter-sectoral transfers are not present.
My third working paper, “A systematic review of water market characteristics in the western U.S.,” addresses the role of institutions in reallocation of water supply in the western U.S. The objective is to comprehend the complexity and heterogeneity of institutional water market characteristics by analyzing them systematically across and within states in the western U.S. I seek to understand the roles played by these characteristics in determining the efficiency of water rights markets. I analyze the multidimensional characteristics of water rights and their transactions by conducting a descriptive case study analysis. First, I identify the market characteristics that define water rights allocation status and transfer processes in the western U.S. Second, I create hypotheses concerning the potential effects of these characteristics on water markets efficiency. Third, I compare these characteristics across six different markets located in Colorado and Texas. The findings suggest that the most important institutional characteristics separating less efficient markets from more efficient ones are whether they i) strictly follow the prior appropriation system, ii) provide opportunities for water rights to be easily transportable, and iii) have a larger or smaller number of market participants.
In other research projects, I have explored the importance of water resources in the context of the natural gas exploration in the eastern U.S. One paper (co-authored with C. Abdalla and B. Swistock) involved the analysis of Pennsylvanian officials’ motivations to lease subsurface mineral rights for natural gas fracking in the Marcellus Shale region (which were obtained through primary data collection via personal interviews). This paper was published in the Journal of Environmental Studies and Sciences (2014). Another project in this area of research involved the estimation of the value of water in Marcellus Shale gas extractions in Pennsylvania and West Virginia together with C. Abdalla and A. Collins. We collected primary data from phone interviews with public water providers and found that the average price charged to gas companies was $6.00/1,000 gallons and $7.60/1,000 gallons in WV and PA, respectively. The additional water sales uniformly increased revenues and the financial status of water suppliers. I presented the findings of this work at the annual AGU meeting (2013), and in a webinar, as part of the Penn State extension series on water (2013).
Looking forward, I intend to continue working in the fields of public policy and natural resource economics, focusing on the efficiencies of various resource management techniques, various property rights regimes, as well as policies and institutions associated with these resources. My primary goal is to continue my focus on the efficiency analysis of water rights markets both in the U.S. and globally. The problem of water supply uncertainty continues to increase. Since the efficient reallocation of water using market-based instruments provides a potential solution to this problem, my ultimate goal is to not only understand why and how markets are different, but also to identify how to improve the efficiency of less efficient markets. I seek to research efficiency in water rights markets at an individual market scale. In addition, I would like to assess various water conservation programs, including the usage of potable water, the renewal of water supply infrastructure, and the adoption of alternative pricing structures. Also, I expect to expand my current research (which looks into agricultural and municipal water uses) by investigating the importance of water resources in the industrial (i.e., energy) and environmental sectors. Lastly, I am open to formulating and analyzing new questions and ideas related to applied microeconomics, where I could creatively use my economic knowledge and econometric skills to provide practical guidance to policymakers in improving old and developing new policies. I intend to continue collaborating with experts from multiple fields and institutions, and hope to extend the connections that I already have.