Intrafirm Effects on Water Conservation in Agriculture

Conservation technology adoption behavior is frequently analyzed at the smallest unit of production to capture important heterogeneity among adopters. Conclusions about firm-level decisions are drawn from these microunit outcomes. However, there may be significant intrafirm interactions that create a dependence among the microunits. This paper tests and quantifies these effects. Using a unique dataset of agricultural water use in California, this paper finds significant differences in water price elasticities of conservation technology adoption between the standard model and models that accounts for the intrafirm interactions.