Caltech graduate student in sustainability Hao Zhao

But Does It Hold Water?

The drought is over. Or at least that’s the word on the street in California after a rain-soaked winter that restored surface water and snowpack in 2017. The picture is far more complicated, though. Groundwater takes years to recover after a prolonged shortage. In the meantime, many parts of the state still lack cohesive plans to meet the needs of people and businesses while protecting water resources. That’s where Hao Zhao comes in.

The Caltech Resnick Fellow is using the tools of economics to identify better ways to assign groundwater rights.

The task requires intellectual heavy lifting. Zhao has spent vast amounts of time collecting source documents. Then there are a multitude of factors to consider, from interconnections among basins to the number of parties pumping water. Even the goal itself is far from simple.

“The project focuses on providing improvement for everyone,” says Zhao, a graduate student in Caltech’s Division of the Humanities and Social Sciences. “It’s not just avoiding a bad environmental outcome or yielding higher overall revenue. You have to find a solution that everyone can accept.”

Naturally, that’s easier said than done. Disputes about water rights have a contentious—even violent—history in California.

The Social Science Approach

Zhao has completed one study of groundwater rights already. Examining data from more than 30 basins around Southern California, he looked for policies that helped preserve groundwater supplies. As it turns out, the best results often came when the courts compelled water companies and other parties drawing from the same aquifers to negotiate among themselves for a sustainable allocation of water rights.

“I found that if you adjudicate your basin, you can actually achieve an increase in water over average,” he says. “Adjudication effectively regulates pumping behavior, because water rights are more valuable when they’re limited.”

By contrast, poorly designed regulatory schemes can be self-defeating. Zhao points to a long-running dispute between fishermen in the United States and Canada as an example. Policies meant to create economic balance and prevent overfishing spurred competition rather than negotiation, and that further depleted fisheries.

“When you set up the rules, you have to understand people’s incentives and what strategy they’ll play. That is where we need the social sciences. ”
- Hao Zhao

His current project aims to home in on a better approach to groundwater rights for California’s Central Valley—a region rife with complications. Compared to Southern California, it has many more, smaller-scale water users, including farmers.

“My current work fills a hole in the literature, and we’re still working on the data,” Zhao says. “Hopefully we can get to some conclusions that help farmers in the Central Valley.”

Inspiration, Input, and Investment

Zhao began studying groundwater regulations at the suggestion of his adviser, Jean-Laurent Rosenthal (PhD ’88), the Rea A. and Lela G. Axline Professor of Business Economics and holder of the Ronald and Maxine Linde Leadership Chair in the Division of the Humanities and Social Sciences.

In Rosenthal—himself a product of Caltech’s doctoral program in social sciences—Zhao found a mentor who inspires.

“I always come to him with my ideas because he pushes me to think deeper,” Zhao says. “I’m lucky to have an adviser like him.”

Donor-supported centers at Caltech also have fueled his investigations.

He gained important perspective at a 2016 workshop, Rationalizing the Allocation of California Water, sponsored by The Ronald and Maxine Linde Center for Global Environmental Science at Caltech. Then, a fellowship from Caltech’s Resnick Sustainability Institute gave him the freedom to focus on his studies—and more.

“The Resnick Fellowship connects you with other people who work on sustainability issues,” he says. “I met scholars studying reservoirs in Southern California from the scientific or engineering side. Their findings are the input variables in my equations.”

Thinking about philanthropic funding and the difference it makes at Caltech, Zhao offers an analysis.

“As an economist, I would say you should always invest in knowledge because it gives you the highest return. Caltech is small, and the scale effect of your investment is so large. People here meet and share ideas, and maybe together they find a better solution. This is just the right place to invest your money, because the knowledge that comes out of that money is unbelievable.”

Giving Priorities