Land Market Valuation of Groundwater

Abstract

We estimate irrigation premiums and implicit marginal valuations of water in-storage using parcel-level transaction data for land sales in the Kansas portion of the High Plains Aquifer. We find that agricultural land values are 53% higher for irrigated parcels than non-irrigated parcels on average and that the irrigation premium has increased at an average rate of 1.0 percentage points per year over the sample period (1988–2015). Spatial heterogeneity in irrigation premiums is explained by differences in saturated thickness of the aquifer. Water in-storage is capitalized into land prices at average marginal values ranging from $3.42/acre-ft to $15.86/acre-ft.