CAN RECREATION VALUES FOR A LAKE CONSTITUTE A MARKET FOR BANKED AGRICULTURAL WATER

I. INTRODUCTION Nevada is the driest state in the union and is full of complex water allocation issues. Water allocation issues are associated with all five large lakes in Nevada. This research focuses on one of Nevada's four terminus lakes, Walker Lake, which often is thought to be dying, having lost approximately 130 feet, or about 75%, of its volume since 1880. (Walker River, which feeds Walker Lake, has its headwaters in California.) Upstream diversions by agricultural users are usually blamed for this decline, which has increased total dissolved solids (TDS), increasing the likelihood that the threatened Lahontan Cutthroat Trout, the lake's primary sportfish, and also the Tui Chub, a fish that these trout feed on, will become extinct in Walker Lake (Brussard et al. 1995). The loss of these species likely would lead to the loss of the Walker Lake fishery and all fishery related recreation. As a possible way to halt the decline of Walker Lake as well as to address other important allocation issues, several parties in Nevada and California have begun discussing the potential for a regional or Nevada State water bank. While such banks are in operation in Idaho, California, Texas and some other states, there is no such institution in Nevada (see Loomis 1992 for a discussion of the California bank; MacDonnell et al., 1994, discuss water banks all over the United States). Fisheries and associated recreation have been important issues relating to development of these other water banks. In Idaho, water was purchased by the Idaho Power Company to augment flows during salmon migration. The Central Valley Improvement Act (California) authorizes a wide array of methods to fund and secure water for fish and wildlife purposes. Among these are a surcharge on water sold to users outside the Central Valley Project and state commitments to buy or lease water rights for wildlife refuges (Loomis, 1994). While the jury is not in on the overall success of existing water banks, water banking provides an opportunity for enhancement of recreation and wildlife. In this paper, a model of recreation choice demand is developed and estimated, revealing the recreation values for enhancing water levels at Walker Lake. This was done as part of a larger project to determine whether recreators' use values for water would make water banking as a method of improving fish habitat and water levels feasible (see Fadali 1997; Fadali, et al., 1998). The recreation demand model results presented in this paper are based on the repeated nested multinomial logit (MNL) specification. The nested MNL is a popular specification for recreation demand models (Kling and Herriges, 1995; Kling and Thomson, 1996; Kaoru, 1995; Kaoru et al., 1995), and the repeated version of it (which includes the option to not participate in recreation) is also used widely (see Montgomery and Needelman, 1997; Morey, 1998; Parsons and Needelman, 1992; Needelman and Kealy, 1995; Lupi et al., 1997; or Shaw and Ozog, 1998). Welfare measures for changes in conditions at Walker Lake are derived using a repeated MNL model. The computed recreation values are compared to agricultural values to assess whether a rental market for agricultural water exists in the region being considered. II. AGRICULTURAL VALUES FOR WATER The analysis begins with a simple examination of agriculture's supply of water. First, assume that the opportunity cost of agricultural water in the Walker River Basin is only determined by competing agricultural uses. This is a reasonable assumption if water is limited to uses within the basin, as there are few competing urban or industrial uses, and water cannot currently be transported outside the basin. It cannot reasonably be assumed that Walker River water can fetch a Reno urban area sales price of around $3,000 per acre foot, a value some in Nevada suggest is appropriate (Bremmer, 1998). (Urban values of water are high, and this leads people in rural areas to fear that they will eventually lose rural water supplies to cities such as Las Vegas. …