California faces significant water management challenges from climate change, affecting water supply, aquatic ecosystems, and flood risks. Fortunately, the state also possesses adaptation tools and institutional capabilities that can limit vulnerability to changing conditions. Water supply managers have begun using underground storage, water transfers, conservation, recycling, and desalination to meet changing demands. These same tools are promising options for responding to a wide range of climate changes. Likewise, many staples of flood management-including reservoir operations, levees, bypasses, insurance, and land-use regulation-are available for the challenges of increased floods. Yet actions are also needed to improve response capacity. For water supply, a central issue is the management of the Sacramento-San Joaquin Delta, where new conveyance, habitat investments, and regulations are needed to sustain water supplies and protect endangered fish species. For flood management, among the least-examined aspects of water management with climate change, needed reforms include forward-looking reservoir operation planning and floodplain mapping, less restrictive rules for raising local funds, and improved public information on flood risks. For water quality, an urgent priority is better science. Although local agencies are central players, adaptation will require strong-willed state leadership to shape institutions, incentives, and regulations capable of responding to change. Federal cooperation often will be essential.

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Concerns over potential adverse effects of a state-sponsored water market have prompted many rural California counties to adopt ordinances restricting groundwater exports since the early 1990s. Results from panel regressions that rely on original water market and institutional data indicate that these local restrictions have significantly reduced water exports. The optimality of this policy is assessed. In the presence of a water market, export restrictions appear as a low-cost management alternative to common property within source regions. The substantial statewide benefits of a market weigh in favor of broader public support to more comprehensive, nondiscriminatory groundwater management initiatives. (JEL Q25, Q21)

We investigate the effect of climate change on population growth in 18th and 19th century Iceland. We find that annual temperature changes help determine the population growth rate in pre-industrial Iceland: a year 1 • C cooler than average drives down population growth rates by 0.57% in each of the next two years, for a total effect of 1.14%. We also find that 18th and 19th century Icelanders adapt to prolonged changes in climate: these adaptations take about 20 years and reduce the short run effect of annual change in temperature by about 60%. Finally, we find that a 1 • C sustained decrease in temperature decreases the steady state population by 10% to 26%.