Externalities: Irrigation and Climate Change

The world as a whole is getting warmer. However, not all places are getting warmer equally quickly.  For example, Nebraska and South Dakota have not experienced any warming in summertime temperatures over the past few decades. Modern climate change models have trouble explaining this (if you're curious about what explanations climate scientists give, see pages 5-7 of the paper I'm about to link to).

Fortunately, economists Thomas Braun and Wolfram Schlenker have an explanation: positive externalities from irrigation are protecting the Great Plains from the rise in temperatures hitting the rest of the US. They find that large-scale irrigation decreased peak August temperatures in the Great Plains by 5 degrees Fahrenheit. This decrease in temperature increased crop yields by $120 million a year, and has saved 1,600 lives that would otherwise be lost to temperature-related causes since 1959 (the authors place the value of this decrease in mortality at $240 million a year).*

How does large-scale irrigation decrease local temperatures? Basically, a large portion of the water used in irrigation evaporates, cooling both the farm doing the irrigation and the farms downwind of it. This is a classic positive externality: irrigation has a positive effect on society in addition to the private benefit it gives to farmers.

The value of these externalities is greater than the direct benefit that the irrigation had on increasing the heat tolerance of the crops they were irrigating ($440 million).

* Unfortunately, economists often find themselves asked by politicians to place a monetary value on human life. The ways we do this are interesting, and mostly revolve around seeing how much more dangerous jobs pay compared to safe jobs that require similar skills. These estimates work decently well when we discuss small changes in life expectancy, but break down if you want to use them to put a monetary value on big changes in life expectancy. They also have the unfortunate side affect of finding that lives in rich countries are worth more than lives in poor countries (since you have to pay people in rich countries more to risk their lives than you have to pay people in poor countries).