By Madeline Turland, Colin A. Carter, Bulat Gafarov, Jens Hilscher, and Katrina Jessoe
California’s agricultural surface water prices exhibit extreme volatility over time because current water allocation systems and seasonal precipitation gaps create severe supply challenges, and this problem is only expected to get worse.
This paper examines the potential for increased water storage to buffer these price spikes by carrying over excess wet-year water to mitigate dry-year scarcity. Our counterfactual analysis demonstrates that maintaining full reservoirs dramatically lowers price volatility.
While expanding surface reservoirs is highly capital-intensive, utilizing excess floodwater for groundwater aquifer recharge offers a viable, cost-effective alternative to stabilize prices.
