Drought, Structural Breaks, and the Economics of Public Land Grazing: Evidence From the Intermountain West

ABSTRACT This study investigates the decline in Bureau of Land Management (BLM) grazing allotments, authorized Animal Unit Months, across eight Intermountain states (Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, Wyoming) from 1980 to 2022, examining the role of drought and structural change. Using outlier detection and structural break tests, we identify a concentrated regime shift in the early 2000s, with seven of eight states experiencing a statistically significant break between 2000 and 2003. Post‐break allotments declined by 11% regionally, ranging from 8% in New Mexico to 27% in Colorado. Outlier analysis reveals substantial heterogeneity in the nature of shocks, with Idaho and Utah experiencing permanent level shifts, Colorado a temporary change, and Wyoming multiple shocks of all types. To quantify drought impacts, we estimate a fixed effects model with a lagged dependent variable and a state‐specific structural break dummy. Results show that a one‐unit decrease in the Palmer Drought Severity Index (PDSI) reduces allotments by 0.5% immediately and by 3.6% in the long run under sustained drought. The break dummy is negative and highly significant, indicating a permanent 6.5% reduction in allotments following the early 2000s drought that is not explained by drought or market variables alone. This suggests that factors beyond drought have reduced grazing capacity. A sustained severe drought (three‐unit PDSI decrease) would permanently remove approximately 893,000 Animal Unit Months (AUMs) annually from the region, equivalent to 149,000–179,000 cow‐calf pairs and representing between $9 million and $27 million in lost forage value at private lease rates. These findings support reforms to drought relief programs to account for lagged and permanent effects, flexible permitting mechanisms for temporary drought, and long‐term adjustment assistance for permanent reductions. State‐specific heterogeneity in drought impacts implies that, while BLM already administers grazing at state and district levels, further differentiation of drought relief and permit flexibility based on state‐level vulnerabilities may improve effectiveness.