LAUSR

Abstract Known as the Four Forest Restoration Initiative (4FRI), the US Forest Service is planning a large-scale restoration of ponderosa pine forests in the Verde River watershed in central Arizona, USA. This paper uses a reduced-form econometric regression model with 1969–2010 time-series data to estimate the economic benefits of the increased water yield due to planned forest restoration of the first phase of 4FRI. We split the data sample into 1969–1989 and 1990–2010 time periods, and conclude during the second time period, water use is statistically and economically significant. This is consistent with the reality that the Verde River watershed has been in drought since the early 1990s. Our central finding is, if water use increases by 1%, the farm income will increase by 1.33%. If a 5–10% increase in water yield caused by the first phase of the 4FRI is all used by agriculture, agricultural income will increase by 6.65–13.3% annually.