The causal effect of losing irrigated water on farmland prices

Abstract

The intensifying impacts of climate change have led to widespread water scarcity across numerous countries. In response, many countries are suspending access to water supplies as part of their drought management strategies. This paper identifies the causal effect of losing access to irrigated water on farmland prices. Using population-based administrative data on farmland transactions from 2014 to 2015, we apply the difference-in-differences and event study methods to estimate the impact of supply-side policies restricting access to irrigated water on farmland prices using the case of Taiwan as an illustration. Farmers that lost access to irrigated water sold their farmland for lower prices during the policy’s rollout and the month following its implementation. High-quality farmland or farmland with the option of non-farm development is not affected by this policy. Altogether, these results imply that monetary payments in lieu of irrigated water can largely compensate farmers from losing access to this natural resource.