Water and Land as Quantity-Rationed Inputs in California Agriculture: Empirical Tests and Water Policy Implications

This paper evaluates competing models of input use for two inputs, surface water and land, in central California agriculture. Applying a model of the multiproduct firm, a variable input model is compared to a fixed input model using model specification tests. Test results support the fixed input model for both surface water and land. The finding that surface water is a quantity-rationed input addresses an important water policy issue, implementation of the Central Valley Project Improvement Act. Water rationing has implications for three key provisions of the act involving water price increases, water marketing, and water supply restrictions.