Valuing Groundwater Services and Water Portfolio in Irrigated Agriculture with a Hedonic Pricing Model

Water plays a vital role in the processes and functioning of the Earth's ecosystems. Only one percent of the earth's fresh water resources are available for human activity. The gap between water supply and demand is increasing due to population growth, development pressure and climate change. Poor water quality aggravates this imbalance even more. A serious concern that naturally arises is how will agriculture, which consumes 70% of world's freshwater withdrawals, respond to these issues. This creates an increasing need for efficient strategies for water management in terms of both water quantity and quality in agriculture. With those needs in mind, the objectives of this research are to, first, better understanding how and the magnitude by which changes in water supply characteristics influence farmland values and second, identify possible adaptation strategies that reduce negative impacts of such changes. With a micro-level data set on approximately 700 agricultural parcels and a hedonic property value model, this dissertation begins by focusing on how groundwater quality and quantity differences and their interactions influence farmland values in the Central Valley, California, a state plagued by both groundwater overdraft and salinity issues. Then this analysis is extended to the entire state of California using information on 1900 agricultural parcels to investigate how different water supply characteristics from different water supply sources influence farmland values and how developing a diversified water portfolio can mitigate the negative changes associated with water supplies. One major conclusion of this dissertation is the importance of recognizing that water is a differentiated product and that there are several pathways in which it can influence irrigated agriculture, including changes in levels, variability and quality. Another major conclusion, and one that can be applied to other regions globally as water becomes scarcer and any particular water supply source becomes less reliable, is that there seem to be significant benefits to water districts and managers in developing a more diversified water portfolio, a lesson embraced all to well in other sectors of the economy, notably the financial sector