Price elasticity reconsidered: Panel estimation of an agricultural water demand function

Authors

Karina Schoengold, University of Nebraska, LincolnFollow
David L. Sunding, University of California, Berkeley
Georgina Moreno, Scripps College

Document Type

Article

Date of this Version

September 2006

Comments

Published in WATER RESOURCES RESEARCH, VOL. 42, W09411, doi:10.1029/2005WR004096, 2006. Copyright 2006 by the American Geophysical Union.

Abstract

Using panel data from a period of water rate reform, this paper estimates the price elasticity of irrigation water demand. Price elasticity is decomposed into the direct effect of water management and the indirect effect of water price on choice of output and irrigation technology. The model is estimated using an instrumental variables strategy to account for the endogeneity of technology and output choices in the water demand equation. Estimation results indicate that the price elasticity of agricultural water demand is -0.79, which is greater than that found in previous studies.