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Irrigation water management in uncertain conditions—Application of Modern Portfolio Theory

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  • Paydar, Z.
  • Qureshi, M.E.

Abstract

With increasing pressure on limited water resources, water managers and policy makers face many challenges to meet various, often conflicting, demands with limited resources and much uncertainty (e.g. climate change and variability) and often lack effective tools to investigate different options under uncertain conditions. Recent studies have highlighted that there will be less water available in the future in many parts of the Murray-Darling Basin, Australia which introduces uncertainty for the future of irrigation in the Basin. However, the water sector needs a robust approach to quantify the risks or setting up management strategies. Adopting the basic idea of spreading the risk from the field of finance, Modern Portfolio Theory is used in the current analysis to quantify the risk associated with a range of irrigation investment strategies (including retiring irrigation land, water savings options, conjunctive use of ground and surface water) to address the issue of water scarcity. The aim of this analytical approach is to increase adaptive capacity of the system by diversifying options and mitigating the associated risk and choosing more robust portfolios or management strategies. In this paper, a risk-based approach to water demand management and planning is formulated and ways of applying “Modern Portfolio Theory” are explored for addressing climate-induced variability and uncertainty in irrigation water supply.

Suggested Citation

  • Paydar, Z. & Qureshi, M.E., 2012. "Irrigation water management in uncertain conditions—Application of Modern Portfolio Theory," Agricultural Water Management, Elsevier, vol. 115(C), pages 47-54.
    • Handle: RePEc:eee:agiwat:v:115:y:2012:i:c:p:47-54
    DOI: 10.1016/j.agwat.2012.08.004
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    References listed on IDEAS

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    1. Barkley, Andrew P. & Peterson, Hikaru Hanawa & Shroyer, James, 2010. "Wheat Variety Selection to Maximize Returns and Minimize Risk: An Application of Portfolio Theory," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 42(01), pages 1-17, February.
    2. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    3. Anastasios Michailidis & Konstadinos Mattas & Irene Tzouramani & Diamantis Karamouzis, 2009. "A Socioeconomic Valuation of an Irrigation System Project Based on Real Option Analysis Approach," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 23(10), pages 1989-2001, August.
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    Cited by:

    1. Farhad Yazdandoost & Seyyed Ali Yazdani, 2019. "A New Integrated Portfolio Based Water-Energy-Environment Nexus in Wetland Catchments," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 33(9), pages 2991-3009, July.
    2. Nam, Won-Ho & Choi, Jin-Yong, 2014. "Development of an irrigation vulnerability assessment model in agricultural reservoirs utilizing probability theory and reliability analysis," Agricultural Water Management, Elsevier, vol. 142(C), pages 115-126.
    3. de Moraes Dutenkefer, Raphael & de Oliveira Ribeiro, Celma & Morgado Mutran, Victoria & Eduardo Rego, Erik, 2018. "The insertion of biogas in the sugarcane mill product portfolio: A study using the robust optimization approach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 91(C), pages 729-740.
    4. Knoke, Thomas & Paul, Carola & Härtl, Fabian & Castro, Luz Maria & Calvas, Baltazar & Hildebrandt, Patrick, 2015. "Optimizing agricultural land-use portfolios with scarce data—A non-stochastic model," Ecological Economics, Elsevier, vol. 120(C), pages 250-259.
    5. Frank A. Ward, 2016. "Policy Nook: “Policy Challenges Facing Agricultural Water Use: An International Look”," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 2(03), pages 1-14, September.
    6. Nam, Won-Ho & Choi, Jin-Yong & Hong, Eun-Mi, 2015. "Irrigation vulnerability assessment on agricultural water supply risk for adaptive management of climate change in South Korea," Agricultural Water Management, Elsevier, vol. 152(C), pages 173-187.
    7. Dehghanipour, Amir Hossein & Zahabiyoun, Bagher & Schoups, Gerrit & Babazadeh, Hossein, 2019. "A WEAP-MODFLOW surface water-groundwater model for the irrigated Miyandoab plain, Urmia lake basin, Iran: Multi-objective calibration and quantification of historical drought impacts," Agricultural Water Management, Elsevier, vol. 223(C), pages 1-1.

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