Natural resource pricing, allocation, and capital investment

This dissertation contains three essays which examine various aspects of water pricing, allocation, and conservation, with a focus on the management of irrigation water resources. The introduction provides a background on the economics of irrigation water usage, focusing on both the underlying economic theory and case studies.;In the first essay, I use a natural experiment in rate reform to estimate agricultural land allocation and irrigation water demand. The analytical model illustrates how producers make decisions on long-term investment and short-term input use, and clarifies the relationship between these choices. I find that including the indirect effects of water price changes on output and technology choices, as well as the direct effect of improved water management leads to a significantly more elastic estimate of water demand than found previously.;The second essay of this dissertation develops a framework to analyze the equity and efficiency of water pricing options with a focus on tiered pricing. It recognizes that water users are heterogeneous in their characteristics and demand, and this heterogeneity needs to be incorporated in the design and assessment of water pricing mechanisms. The results show that under certain circumstances efficiency can be achieved in a manner that also reduces inequality. I demonstrate the importance of the utility's cost function and the distribution of individuals in achieving these joint goals, and show that the availability of multiple water sources improves a utility's ability to subsidize the costs of poor individuals with revenue from the wealthy.;The third essay of this dissertation measures the cost of increased stream flow requirements for a utility that produces hydropower and buys electricity on the spot market. I assume that both electricity demand and the spot price (the alternative to hydropower) are stochastic, and affected by local and regional weather shocks respectively. I find that the inclusion of an option value component changes the cost of regulation (compared to the status quo where the cost is measured ex-post).;Together, these essays illustrate important issues in the economics of water management, and show the importance of recognizing the inherent heterogeneity in water users and sources.