Many proposed surface water transfers undergo a series of regulatory reviews designed to mitigate hydrological and economic externalities. While these reviews help limit externalities, they impose substantial transaction costs that also limit trade. To promote a well-functioning market for surface water in California, we describe how a new kind of water right and related regulatory practices can balance the trade-off between externalities and transaction costs, and how a Water Incentive Auction can incentivize a sufficient number of current rights holders to swap their old rights for the new ones. The Water Incentive Auction adapts lessons learned from the US government’s successful Broadcast Incentive Auction.

Media: [KJZZ Radio] [SIEPR] [Quartz]

We provide new evidence on the drivers of the early US coronavirus pandemic. We combine an epidemiological model of disease transmission with quasi-random variation arising from the timing of stay-at-home-orders to estimate the causal roles of policy interventions and vol- untary social distancing. We then relate the residual variation in disease transmission rates to observable features of cities. We estimate significant impacts of policy and social distancing responses, but we show that the magnitude of policy effects is modest, and most social distancing is driven by voluntary responses. Moreover, we show that neither policy nor rates of voluntary social distancing explain a meaningful share of geographic variation. The most important predictors of which cities were hardest hit by the pandemic are exogenous characteristics such as population and density.

Media: [Vox] [Forbes]

We introduce a novel measure of segregation, experienced isolation, that captures individuals’ exposure to diverse others in the places they visit over the course of their days. Using Global Positioning System (GPS) data collected from smartphones, we measure experienced isolation by race. We find that the isolation individuals experience is substantially lower than standard residential isolation measures would suggest, but that experienced andresidential isolation are highly correlated across cities. Experienced isolation is lower relative to residential isolation in denser, wealthier, more educated cities with high levels of public transit use, and is also negatively correlated with income mobility. Individuals are more isolated close to home and at locations like churches and schools, and less isolated at entertainment, retail, and eating establishments.

This paper studies barriers to water trade in California's surface water market. Despite significant price disparities between users, less than 5% of surface water is traded annually. Commonly cited frictions include the costly management of trade externalities due to incomplete property rights, hydrological interdependence, and infrastructural constraints. I build and estimate a spatial model of California's water market to decompose these frictions and simulate counterfactual market designs that balance transaction costs and externalities. My model features agricultural production, urban demand, hydrological externalities, and bilateral transaction costs. I find that incomplete property rights and constraints on an important bottleneck in the system represent significant sources of friction. Despite qualitative concern about the regulatory burden of managing externalities, current policies trade off externalities and transaction costs well. I estimate that new infrastructure coupled with streamlining water rights management would quadruple trade volume, increase agricultural profits by 10%, and increase environmental water supply. While these interventions reduce misallocation amongst farmers, they do not significantly benefit urban buyers.

Can carbon taxes and associated carbon border adjustments (CBAs) respect existing agreements in international trade while significantly reducing pollution from carbon emissions? This paper answers this question in the context of a quantitative trade-and-emissions model for both non-cooperative (Nash) and cooperative (international negotiation with participation constraints) carbon tax setting. We find that a climate agreement that deviates from the usual design of uniform carbon taxes applied across its members and instead entertains the possibility of country-specific carbon taxes as a means of addressing participation constraints can achieve substantial reductions in worldwide emissions and offer a meaningful WTO-consistent alternative to the climate clubs described by Nordhaus (2015) that confront non-participants with the threat of WTO-inconsistent Nash tariff punishments. And we find that the design of CBAs permitted by the WTO can impact the degree of worldwide carbon reduction and welfare improvements in important ways. In particular, our findings suggest that optimal WTO rules on permissible CBAs will evolve with the evolving success of international cooperation over climate policy.

We propose a sensitivity analysis for Synthetic Control (SC) treatment effect estimates to interrogate the assumption that the SC method is wellspecified, namely that choosing weights to minimize pre-treatment prediction error yields accurate predictions of counterfactual post-treatment outcomes. Our data-driven procedure recovers the set of treatment effects consistent with the assumption that the misspecification error incurred by the SC method is at most the observable misspecification error incurred when using the SC estimator to predict the outcomes of some control unit. We show that under one definition of misspecification error, our procedure provides a simple, geometric motivation for comparing the estimated treatment effect to the distribution of placebo residuals to assess estimate credibility. When we apply our procedure to several canonical studies that report SC estimates, we broadly confirm the conclusions drawn by the source papers.

How do permanent changes in agricultural water use affect local communities? Concern about negative impacts on local economies that sell water has hindered efforts to promote market-based reallocation as a tool for adapting to water scarcity. This paper uses the liberalization of water markets in Australia’s Murray-Darling Basin in 2007 to investigate how the reallocation of water affects local economies and residents’ welfare. Exploiting differences in endowments of soil productivity to instrument for post-reform changes in water usage, we document significant local economic spillovers from water leaving irrigated communities. We estimate that the median water loss leads to a 7\% decline in wages, a 15\% decline in agricultural employment, a 12\% decline in population, and a 16\% decline in home prices. To quantify community welfare, we develop and estimate a dynamic residential choice model and recover household willingness-to-pay for local irrigation. An important new feature of our dynamic model is that residents value \emph{rootedness}, the interaction of their own tenure in a location with the tenure of other residents. We find substantial heterogeneity in willingness-to-pay: the median community values irrigation at \$49/ML and 25\% of communities value water over \$180/ML. Combining these estimates with agricultural production function estimates we find that private farmer and local community values for irrigation are negatively correlated. The market tends to allocate water toward communities that value it less. In our counterfactual analysis, we explore market designs that achieve Pareto improvements for all local communities. While there is enough surplus to achieve Pareto gains, if private buyers and sellers are responsible for compensating selling communities, 43\% of potential trades fail. Market mechanisms must incorporate buying community benefits to unlock broader gains from trade. We propose a tax mechanism both on trades and communities that ensures Pareto improvements while sacrificing little in aggregate efficiency.

Governments are increasingly turning to conservation auctions to adapt to a changing climate. While classic procurement auctions are designed to leverage competition between individual resource users, many natural resources incorporate local community control. For example, local jurisdictions manage land use, fishing cooperatives distribute catch quotas, and irrigation districts govern farmer water entitlements. In these settings, the planner must elicit willingness-to-accept from direct users and their relevant governing bodies. In this paper, we develop a theory of optimal procurement when the planner faces this nested governance: agents can contract only with their governing authority’s consent. Both agents and authorities are characterized by private values for the resource actions. Authorities also differ in the degree to which they internalize member welfare. Using mechanism design tools, we find that the optimal mechanism favors procurement from more altruistic communities, creating distortions that are absent from standard procurement theory. We show that optimal design critically depends on authority altruism. At one extreme, when governing authorities do not care about member surplus they act as monopsonistic intermediaries. On the other end, authorities that perfectly internalize member surplus align objectives with the social planner. We compare mechanisms that operate with varying degrees of information about authority altruism and rationalize why real-world conservation auctions often delegate procurement to authorities, rather than elicit information from agents directly. We then propose a clock-auction design that could realistically implement procurement under nested governance. We analyze the performance of different mechanisms using empirical estimates of private farmer and local community willingness-to-accept for surface water from Australia’s Murray-Darling Basin.