THREE APPLIED ECONOMICS ESSAYS ON WASHINGTON AGRICULTURE

Suhina Deol

doi:10.7273/000006483

This dissertation consists of three applied economics chapters and data for each chapter was gathered from water rights holders, farmers, and crops in Washington State, which is in the northwest United States (US). The first chapter uses an incentive-compatible, induced-value experiment to explore whether (1) the nonpecuniary benefits of farming or (2) psychological ownership affects water market participation and offers. The second chapter examines the relationship between the nonpecuniary benefits of farming and farmers’ decisions regarding (1) increasing future production, (2) remaining in farming, (3) holding an off-farm job, and (4) participating in water markets. The third chapter uses the Clayton copula to examine weekly price return losses co-movements among wheat, corn, and apples. These three chapters add to the existing literature and aid future water market development in Washington State. This is important because climate change is placing additional pressure on the limited water supplies in the Western US. Most of the water in the region goes to agriculture so it is important to understand farmers’ choices as they are the central drivers of agriculture. As climate change increases the likelihood of drought across the West, surface water rights trading can help promote efficient water allocation. A dimension of water market models that have been underdeveloped to date is the characterization of the co-movement between agricultural commodity prices. Water markets mitigate drought impacts by facilitating the reallocation of water from low to high-value crops when there is not enough water. In the first chapter, I asked 181 water rights holders in Washington state to engage in hypothetical scenarios to lease or sell their water rights or continue farming. Even though entering the market was always more profitable in both scenarios, only 66% chose to sell their water right versus 90% in the lease scenario. I use the Ordinary Least Squares (OLS) model to test whether experimental treatments, inducing nonpecuniary benefits and psychological ownership, had a significant impact on seller offers in the hypothetical lease or sell scenarios. I use a Logistic model to test whether experimental treatments affect market participation. I find that neither of the experimental treatments had a statistically significant impact on water market participation and seller offers. In the second chapter, I surveyed Washington state farmers who have surface water rights. I gave participants 23 statements and asked them to indicate to what extent they agreed or disagreed with them on a scale from 1 (completely disagree) to 7 (completely agree). For example, one statement said: My neighbors would be upset with me if I leased or sold water rights. I use exploratory factor analysis to take the responses to the 23 statements and make latent constructs reflecting their perceptions into distinct categories of nonpecuniary and pecuniary benefits of farming with irrigation. I regress four Logistic models, one for each dichotomous dependent variable: (1) plan to increase production over the next three years, (2) plan to remain in farming in the next ten years, (3) currently participating in off-farm labor, and (4) have participated in a water lease or sale (as a buyer or seller). I find farmers with successors are more likely to increase future farm production over the next three years. Farmers who plan to farm in the next ten years are likelier to have a high income and receive social and lifestyle benefits from farming. Small farm farmers (less than 50 acres of land) are likelier to have a job off-farm. Large farm farmers (over 1000 acres of land) are more likely to have participated in water markets. In the third chapter, I look at Washington State loss correlation using the Clayton copula technique between annual (wheat and corn) and perennial crops (apple varieties) from 2009 to 2019. I also examine the correlation, with the Clayton copula, between low and high-value apple varieties, such as Red Delicious and Honeycrisp, respectively. Between commodities, I find Soft White wheat and corn (37%) has the highest degree of lower tail co-movement, followed by Hard Red Spring wheat and corn (35%). Between varieties of a single commodity, the largest dependence exists between Hard Red Spring and Soft White wheat (41%). The highest correlations among apple varieties are between Red Delicious and Fuji (25%) and Red Delicious and Granny Smith (25%), while the lowest is between Red Delicious and Honeycrisp (11%). Annual and perennial weekly price return losses were independent of one another.

THREE APPLIED ECONOMICS ESSAYS ON WASHINGTON AGRICULTURE

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