Throughout this nation, excluding the North East, water is a critical resource for agricultural productivity, environmental viability, and urban development. Over the past 70 years the development of additional infrastructure for storage and distribution has met the growing pressures of water demand. Frequently, this has been publically financed, often with implicit or explicit subsidies.

Vast aquifers in the West are created and/or sustained by seepage from canals. This surface to groundwater hydrologic connection can be a one-way or reciprocal externality. Examples of current market failures and inefficient water allocation illustrate economic remedies to the market failures arising from hydrologic externalities.

There is concern that anticipated expansion of biofuels production may further deplete scarce water resources. The National Academy of Sciences recommends improved irrigation technology in growing biofuel crops and recycling of process water in biorefineries as potential conservation measures. These measures may unintentionally worsen water supply impacts of biofuels production.

Reduced per capita water use is the goal of most municipal water conservation programs. Landscape irrigation dominates residential water use. Household attitudes and choices were surveyed in three New Mexico cities, and findings suggest that homeowners are mindful of water challenges and are prepared to shoulder responsibility for stewardship.

The subsidization of efficient irrigation technology is considered a policy tool for water conservation. We evaluate such a program in Kansas and find evidence that it did not have the intended effect. The conversion to dropped-nozzle technology induced the production of more water-intensive crops and increased total groundwater extraction.

Climate change will likely reduce surface water availability and yields of most California crops. We explore the economic impacts and potential adaptation to climate change using a hydro-economic approach. While California irrigated crop land area will be significantly reduced under warm-dry climate change, agricultural revenues will drop less than land area because of market growth and adaptation of cropping patterns to less water-intensive, higher-valued crops.