Unintended Consequences of Environmental Policies: The Case of Urban Growth Controls

When environmental policies do not control decision making on all margins, they can have the unintended effect of increasing a targeted externality, rather than reducing it, as well as creating additional externalities. The first two chapters of this dissertation examine urban growth boundaries (UGBs) in Ventura County, California. Among the most stringent growth controls in the nation, the primary purpose of Ventura County UGBs was to preserve open space outside of growth boundaries. I begin by estimating a Regression Discontinuity model of land values. The average discontinuity in land values created by Ventura County UGBs is the largest among existing empirical papers, consistent with the claim that Ventura County's growth controls are among the most stringent. Next, I examine the effect of UGBs on agricultural land use decisions. While UGBs control extensive margin decisions---in particular, limiting the conversion of open space and agricultural land to developed uses---they do not control intensive margin decisions, such as the level of intensity of agricultural production. I develop a simple theoretical model to demonstrate that eliminating the future rent stream from development creates incentives for landowners to adopt more capital-intensive agricultural uses. In Ventura County, this has taken the form of conversion of grazing land to intensive crops, which has increased groundwater pumping and pesticide and fertilizer applications, both sources of significant externalities. I develop a panel data set on agricultural land use in Ventura County and neighboring Santa Barbara County (which did not adopt UGBs) to empirically estimate the effects of UGBs on agricultural intensification rates. Difference-in-difference estimates reveal that Ventura County UGBs had a large effect on agricultural intensification rates, particularly in the neighborhood of growth boundaries. That is to say, policies designed to limit the negative externalities caused by urbanization increased the negative externalities associated with existing agricultural production. The final chapter of this dissertation examines the economic returns to groundwater management in Ventura County by estimating the effect of different groundwater management regimes on land values.