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California is facing a severe water crisis. Water resources allocation creates conflicts among urban users, farmers, and environmentalists. Large diversions of water for agriculture and urban uses restrict habitat for native fish species contributing to the fish population collapse in the Sacramento- San Joaquin Delta. Efficiently allocating water between water uses is a current policy priority. The Yolo Bypass floodplain, located in the Delta, is at the center of the debate. It provides unique habitat to native fish species, agricultural production, and flood protection to the city of Sacramento. The seasonal flooding of Yolo Bypass provides critical habitat to Chinook salmon. Yet, it may conflict with agricultural production, in particular rice farming. Managing Yolo Bypass for the joint production of wildlife and crops is critical to achieve efficient water allocation and species conservation objectives. We develop a model that captures the marginal benefit to the commercial Chinook fishery and the opportunity cost to Yolo Bypass agriculture. Habitat provision affects both the crop yields and the fish stock—through greater survival rate of the juvenile Chinook salmon that use the inundated floodplain. We explicitly model how these two activities are affected by the habitat and allow for feedback between the fishery and agricultural production models such that crop acreages and harvest are endogenous to the model. The question presents a unique challenge for economists because the spatial and temporal scales of these models differ widely. While economic models can be aggregated for estimation and are normally predicated on yearly cropping decisions, biological models are sensitive to habitat variation over short distances and weekly, if not daily, changes. Our model uses a calibration approach to formally model the opportunity cost to agriculture.


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