Beschreibung:
Surface water supplies are becoming increasingly strained pushing policy makers to find solutions to facilitate reductions in water use, though there is limited evidence on how farmers respond to policy driven reductions in surface water supplies. This paper uses a difference-in-differences framework to compare the response of farmers to a bundle of policies reducing deliveries from the Colorado River by 35%. I find that on average, farmers reduce the amount of land planted but plant more water intensive crops leading to a net zero effect on total estimated water use compared to the counterfactual. The average effect hides important heterogeneity by estimated groundwater costs, with those in areas with more expensive groundwater experiencing larger changes in production and water use. Overall the results suggest that farmers are using groundwater to offset a significant amount of the surface water loss. These findings have important consequences for understanding the relative tradeoffs policy makers face when implementing policies that protect surface water sources