The two main objectives of the East Bay Municipal Utility District (EBMUD) water supply management program are to cope with a failure of the aqueducts in the Delta due to earthquake and flood damage and to mitigate periodic shortages. EBMUD emphasizes construction of additional terminal storage, specifically development of a reservoir in Buckhorn Canyon, to meet both objectives. Better alternatives--cheaper and less environmentally damaging--are (to cope with failure) use of existing terminal storage and interties, along with an eventual phased construction of secure aqueducts in the Delta, and (to mitigate shortages) purchase of high quality Mokelumne River water from the nearby Woodbridge Irrigation District, along with sharply rising block rates to induce conservation by EBMUD customers. Additional terminal storage, only as a last resort, would better come from some marginal addition to capacity at the planned Los Vaqueros Reservoir rather than construction of a new reservoir in Buckhorn Canyon. Under plausible assumptions, the cost of providing high quality water during a shortage is 10 times as high under the Buckhorn option as it would be with water purchases and conservation.

Abstract: We reconsider the problem of inefficiency and nonexistence of a competitive equilibrium in exhaustible resource markets where extraction costs are nonconvex. The existence of a backstop technology (which induces a flat portion of the industry demand curve) restores both existence and efficiency, provided that the backstop price is sufficiently low. If firms face even a small amount of uncertainty regarding their rivals' stocks, a backstop technology is sufficient to restore existence of competitive equilibrium, even if the backstop price is very high. In this case, however, the competitive equilibrium is not efficient.

If average costs in a nonrenewable resource industry are U-shaped, a competitive equilibrium may not be optimal and, indeed, may not exist. Although the differential equation that describes the change in the rate of extraction is the same for planner and firm, the boundary conditions obtained from the transversality conditions for the respective problems (for planner and firm) will not, in general, be the same. If costs are convex, or if there exists a backstop technology which can produce the resource services at sufficiently low cost, the boundary conditions are, however, the same.

In this paper a basic theoretical model of residential water consumption that adequately represents consumer behavior when facing a nonlinear budget constraint is developed. The theoretical model for an individual consumer is adapted to yield an aggregate model that essentially preserves the structure of the demand function for the individual. The model is used to study the influence of prices and nonprice conservation programs on consumption and conservation behavior in three water districts in the San Francisco Bay Area. The empirical results show that pricing can be an effective tool in reducing water consumption but, when the influence of conservation programs is controlled for, the pricing effect is mitigated. Use restrictions and landscaping audits appear to be particularly effective in inducing conservation from consumers.

This dissertation incorporates three independent essays on the impact of climate change on the United States' agriculture, with each explores a different facet of climate change. There have been heated debates about the potential impact of climate change on the United States' agriculture. Several influential studies such as Schlenker, Hanemann, and Fisher (2005, 2006), Schlenker and Roberts (2006) suggest a potentially large negative impact of climate change on farmland values and crop yields, while others including Mendelsohn, Nordhaus, and Shaw (1994), and Deschenes and Greenstone (2007) believe that there is little impact or the US agriculture could be a major beneficiary of global warming. These opposing results inspired my work to examine another aspect of climate change that has not been carefully addressed in the current literature: the impact of climate and weather extremes.

While any individual extreme event cannot be causally linked to climate change, there could be a higher probability of more severe extreme events in the future. There are several potential scenarios in which we may expect more heating, less cooling, and less fluctuations between the extremes with different forms of distributional shifts in climatic conditions, all having the same change in the mean temperature. For example, climate change may result in increased precipitations in Northern America in the form of more droughts and more flooding events. These differential changes in the distribution of climatic conditions may have a subtle impact on agriculture, which could not be identified by studying moment variables such as the mean and the variance of temperatures or precipitations.

The three essays inherited two major empirical methods widely used in estimating the impact of climate change: hedonic regression and panel data. Hedonic regressions (also called the Ricardian approach) utilize cross-sectional variations to identify how climatic conditions such as the average temperature or precipitation capitalize in farmland values, and panel estimations that employ within variations to link weathers with annual crop yields or farm profits. However, there is a situation in which both techniques are insufficient. If economic agents have forward-looking behaviors, and under uncertainties, the decision making process will involve a dynamic optimization problem whose a reduced-form approach as derived from either cross-sectional or panel data technique may not truly identify the actual behaviors. I devised an innovative dynamic programming approach built up on the Ricardian method to estimate the impact of natural disasters such as extreme drought events on cropland conversions.

In the first essay, using historical crop yield reports paired with high-resolution climate data, I discovered a small and positive effect of a decreasing diurnal temperature range on yields of five major crops including corns, wheat, cotton, soybeans, and sorghum. The asymmetric increases in observed maximum and minimum temperature have resulted in a falling diurnal temperature range across the United States. This effect could help mitigate some potential harmful impacts of climate change in the future, averaging up to a two percent yield offset for summer crops. Meanwhile, little impact on winter crops is expected. Moreover, the overall impact of climate change from a rising mean temperature and less fluctuations is dominantly harmful for most crops.

The second essay presents a structural model of cropland conversions with an application to the impact of extreme droughts. Droughts are perhaps the most destructive events to the US agriculture. Extended periods of severe droughts in the late 20th century caused widespread economic damages comparable to that of the Dust Bowl in 1930s. I showed that those events contributed to converting lands from agricultural production to urban uses by damaging soil productivity and lowering farming profits. I concluded the Ricardian approach to estimating climate change impacts is insufficient. Specifically, the Ricardian method works well for equilibrium adjustments by assuming that farm owners are able to make complete adaptations to a changing environment. However, the Ricardian approach fails to take into account the presence of climate extremes whose adaptations are neither possible nor costless. As a consequence, this method may underestimate the true cost of transient events related to climate change such as extreme droughts. This finding carries a significant implication for the future of the US' private croplands. As the US is predicted to experience more precipitations in the future with climate change, it seems that there would be a beneficial impact of more water for crops. It may not necessarily be the case, however. Even with increased precipitations, drought conditions may occur more frequently and intensively. Damages from potentially extreme drought events were not considered in the Ricardian estimates.

In the third essay, I examined the impact of extreme heating conditions on prime farmland conversions in California using the hedonic regression technique with a spatial dataset. I focused on the number of extreme heating days, defined as day with the recorded maximum temperature rises above 90 degree Fahrenheit. I found a small but significant nonlinear impact of extreme heating days on farmland conversions. A mild increase in the number of extreme heating days may be good for crops, thus helps keep farmlands in agricultural production. However, too excessive heating is harmful and accelerates conversions out of farming.