ESTIMATING IRRIGATOR ABILITY TO PAY FOR RECLAMATION WATER

Abstract

The reclamation program sets prices based on irrigators' ability to pay for water. In contrast to the traditional approach (the farm budget study), this research develops a model of irrigator profit and ability to pay. The shadow price (marginal revenue) of water is shown to measure ability to pay per acre-foot of water. The model can be estimated econometrically with commonly available, although deficient, data. Using data from thirteen water districts in California, annual, district-level shadow price functions are derived for 1981-91 and compared to ability-to-pay estimates from a farm budget study of the districts.