The Role of Peer Effects in Natural Resource Appropriation – The Case of Groundwater

Abstract

Spatially mediated peer effects are increasingly recognized as an important driver of technology adoption. In this paper, we isolate the role of peer effects from environmental factors in the acquisition of groundwater rights for agricultural irrigation in Kansas. We find strong evidence of peer effects influencing farmers’ decisions to adopt groundwater irrigation. Using a rich dataset on groundwater rights for the period 1943–2014 and a nearest neighbor peer group definition, we find that one additional neighbor adopting groundwater for irrigation increases groundwater adoption by an average of 0.25 percentage points. We also find that the average marginal effect of one additional peer is reduced by distance and diminishes as the total number of neighbors adopting groundwater increases. Using our model estimates to simulate a counterfactual without peer effects, we find that water rights appropriation stemming from peer effects accounted for about 11 million acre‐feet of extraction from the Kansas High Plains Aquifer. This amounts to about three years of typical annual extraction. Our results provide evidence that peer effects can “speed up” resource extraction and can help inform policy makers in designing exploitation control rules.

Digging deep and running dry—the adoption of borewell technology in the face of climate change and urbanization

“…Damania et al (2017) or Vandercasteelen et al (2018), for example, find that lower transportation costs due to the proximity to cities and/or markets increase the likelihood of technology adoption. Another factor related to technology diffusion is learning due to social interaction (Abdulai & Huffman, 2005;Sampson & Perry, 2019). Even though our research focuses on exogenous spatial heterogeneity induced by urbanization dynamics, potential spatial interdependence in the decision making of neighboring farmers has to be mentioned and will be controlled for in the empirical analysis of this study.…”

Spatially Mediated Peer Effects in the Adoption of Conservation Agriculture Practices

“…Our work contributes to the existing literature on spatial effects and technology adoption by disentangling spatially mediated peer effects from spatial heterogeneity (Bell et al, 2014;Bollinger and Gillingham, 2012;Conley and Udry, 2010;Foster and Rosenzweig, 1995;Genius et al, 2014;Muller and Rode, 2013;Sampson and Perry, 2019). To the best of our knowledge, no previous study has empirically examined the role of spatially mediated peer effects in the adoption of conservation agriculture practices in the U.S. One limitation of the study is that due to the lack of data, the empirical model used in the study does not include farm-level variables on soil conditions and crop mix.…”

Peer effects in the diffusion of water‐saving agricultural technologies

“…In recognition of this, a growing strand of literature has studied the possibility of peer effects as a feature of agricultural technology adoption (Bandiera & Rasul, 2006;Burlig & Stevens, 2017;Conley & Udry, 2010;Foster & Rosenzweig, 1995;Genius, Koundouri, Nauges, & Tzouvelekas, 2014;Krishnan & Patnam, 2014;Matuschke & Qaim, 2009;Ramirez, 2013). Peer effects have been identified in a range of other settings as well, such as residential solar photovoltaic installations (Bollinger & Gillingham, 2012;Graziano & Gillingham, 2015;Müller & Rode, 2013;Rode & Weber, 2016), healthcare products (Oster & Thornton, 2012), residential foreclosures (Towe & Lawley, 2013), and exploitation of natural resources (Barnes, Lynham, Kalberg, & Leung, 2016;Lynham, 2017;Robalino & Pfaff, 2012;Sampson & Perry, 2019). If peer effects do in fact drive decisions to adopt new technologies, then policy makers can leverage peer influence to more efficiently steer public policy.…”

“…Sangtaek, Eduardo, Mitchell, and Leatham (2008) evaluate the profitability of LEPA under different output prices. Pfeiffer and Lin (2014a) estimate the factors that affect Kansas LEPA adoption in the first stage of a 5 Refer to Peck (2003) and Sampson and Perry (2019) for more details on water rights in Kansas. F I G U R E 1 New LEPA per year (left) and cumulative usage over time (right) two-stage groundwater extraction model.…”