Stopping the Drain: Third‐party Responses to California's Water Market

Concerns over potential adverse effects of a state‐sponsored water market have prompted many rural California counties to adopt ordinances restricting groundwater exports since the early 1990 s. Results from panel regressions that rely on original water market and institutional data indicate that these local restrictions have significantly reduced water exports. The optimality of this policy is assessed. In the presence of a water market, export restrictions appear as a low‐cost management alternative to common property within source regions. The substantial statewide benefits of a market weigh in favor of broader public support to more comprehensive, non‐discriminatory groundwater management initiatives. (JEL Q25, Q21)