Water Conservation Policy Analysis: An Interregional, Multi‐Output, Primal‐Dual Optimization Approach

Abstract

Abstract An interregional, multi‐output, normalized restricted‐equilibrium model of field‐crop agriculture is estimated within the context of a multistage, programming‐based, system estimation procedure. Implicit, total economic‐cost functions endogenize behavioral, opportunity adjustment costs of fixed and allocatable land and water resources. Crop‐specific, Marshallian water‐demand elasticities are estimated for restricted and unrestricted groundwater substitution environments, and decomposed by water source. Elasticities are inelastic, but water‐price policy reform can be an effective water‐conservation policy tool when groundwater use is unrestricted. When groundwater use is restricted, effective conservation policy requires more dramatic water‐price policy reform.