IDEAS home Printed from https://ideas.repec.org/p/ags/eaae11/114536.html
   My bibliography  Save this paper

Investment in Irrigation Systems under Weather Uncertainty

Author

Listed:
  • Heumesser, Christine
  • Fuss, Sabine
  • Szolgayova, Jana
  • Strauss, Franziska
  • Schmid, Erwin

Abstract

Irrigated agriculture will play a crucial role to meet future food demand, but a sustainable water resource management in agriculture is crucial as well. Therefore, the European Water Framework Directive promotes several measures, e.g., the adoption of adequate water pricing mechanisms or the promotion of water-saving irrigation techniques. Since production conditions such as weather and climate development are uncertain, farmers might be reluctant to invest in a water-saving but capital intensive irrigation system. We apply a stochastic dynamic programming approach to analyze a farmer’s optimal investment strategy for either a water–saving drip irrigation system or sprinkler irrigation system under weather uncertainty and assess the probability of adopting either irrigation system until the year 2040. We design two policy scenarios: (i) irrigation water pricing and (ii) equipment subsidies for drip irrigation, and investigate how they affect the farmer’s optimal investment strategy. Our case study analysis is performed for the region Marchfeld, a typical semi-arid agricultural production region in Austria. We use data from the bio-physical process simulation model EPIC (Environmental Policy Integrated Climate) which accounts for site and management related characteristics as well as weather parameters from a statistical climate change model. We find that investment in drip irrigation is unlikely unless subsidies for equipment cost are granted. Even water prices do not increase the probability to adopt a drip irrigation system, but rather decrease the probability to invest into either irrigation system.

Suggested Citation

  • Heumesser, Christine & Fuss, Sabine & Szolgayova, Jana & Strauss, Franziska & Schmid, Erwin, 2011. "Investment in Irrigation Systems under Weather Uncertainty," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114536, European Association of Agricultural Economists.
    • Handle: RePEc:ags:eaae11:114536
    DOI: 10.22004/ag.econ.114536
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/114536/files/Heumesser_Christine%20_556.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.114536?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    2. Erwin Schmid & Franz Sinabell & Markus F. Hofreither, 2007. "Sustainability in Practice: A Case-Study on the Reorientation of Common Agricultural Policy in Austria," Chapters, in: Uwe Schubert & Eckhard Störmer (ed.), Sustainable Development in Europe, chapter 7, Edward Elgar Publishing.
    3. Yohannes, Fekadu & Tadesse, Teshome, 1998. "Effect of drip and furrow irrigation and plant spacing on yield of tomato at Dire Dawa, Ethiopia," Agricultural Water Management, Elsevier, vol. 35(3), pages 201-207, January.
    4. Strauss, Franziska & Formayer, Herbert & Asamer, Veronika & Schmid, Erwin, 2010. "Climate change data for Austria and the period 2008-2040 with one day and km2 resolution," Discussion Papers DP-48-2010, University of Natural Resources and Life Sciences, Vienna, Department of Economics and Social Sciences, Institute for Sustainable Economic Development.
    5. Cetin, O. & Bilgel, L., 2002. "Effects of different irrigation methods on shedding and yield of cotton," Agricultural Water Management, Elsevier, vol. 54(1), pages 1-15, March.
    6. repec:zbw:inwedp:482010 is not listed on IDEAS
    7. Tozer, Peter R., 2009. "Uncertainty and investment in precision agriculture - Is it worth the money?," Agricultural Systems, Elsevier, vol. 100(1-3), pages 80-87, April.
    8. Kiniry, James R. & Major, D. J. & Izarralde, R. C. & Williams, J. R. & Gassman, Philip W. & Morrison, M. & Bergentine, R. & Zentner, R. P., 1995. "Epic Model Parameters for Cereal, Oilseed, and Forage Crops in the Northern Great Plains Region," Staff General Research Papers Archive 894, Iowa State University, Department of Economics.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Christine Heumesser & Sabine Fuss & Jana Szolgayová & Franziska Strauss & Erwin Schmid, 2012. "Investment in Irrigation Systems under Precipitation Uncertainty," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 26(11), pages 3113-3137, September.
    2. repec:zbw:inwedp:512011 is not listed on IDEAS
    3. Bernhard Stürmer & Johannes Schmidt & Erwin Schmid & Franz Sinabell, 2011. "A Modeling Framework for the Analysis of Biomass Production in a Land Constrained Economy. The Example of Austria," WIFO Studies, WIFO, number 41748, December.
    4. Ko, Jonghan & Piccinni, Giovanni & Steglich, Evelyn, 2009. "Using EPIC model to manage irrigated cotton and maize," Agricultural Water Management, Elsevier, vol. 96(9), pages 1323-1331, September.
    5. Luquet, Delphine & Vidal, Alain & Smith, Martin & Dauzat, Jean, 2005. "`More crop per drop': how to make it acceptable for farmers?," Agricultural Water Management, Elsevier, vol. 76(2), pages 108-119, August.
    6. Rajak, Daleshwar & Manjunatha, M.V. & Rajkumar, G.R. & Hebbara, M. & Minhas, P.S., 2006. "Comparative effects of drip and furrow irrigation on the yield and water productivity of cotton (Gossypium hirsutum L.) in a saline and waterlogged vertisol," Agricultural Water Management, Elsevier, vol. 83(1-2), pages 30-36, May.
    7. Ben Abdallah, Skander & Lasserre, Pierre, 2016. "Asset retirement with infinitely repeated alternative replacements: Harvest age and species choice in forestry," Journal of Economic Dynamics and Control, Elsevier, vol. 70(C), pages 144-164.
    8. Oscar Gutiérrez & Francisco Ruiz-Aliseda, 2011. "Real options with unknown-date events," Annals of Finance, Springer, vol. 7(2), pages 171-198, May.
    9. Timothy Erickson & Toni M. Whited, 2000. "Measurement Error and the Relationship between Investment and q," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 1027-1057, October.
    10. Arve, Malin & Zwart, Gijsbert, 2023. "Optimal procurement and investment in new technologies under uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 147(C).
    11. Shively, Gerald E., 2001. "Price thresholds, price volatility, and the private costs of investment in a developing country grain market," Economic Modelling, Elsevier, vol. 18(3), pages 399-414, August.
    12. Marks, Phillipa & Marks, Brian, 2007. "Spectrum Allocation, Spectrum Commons and Public Goods: the Role of the Market," MPRA Paper 6785, University Library of Munich, Germany.
    13. Stern, Nicholas, 2018. "Public economics as if time matters: Climate change and the dynamics of policy," Journal of Public Economics, Elsevier, vol. 162(C), pages 4-17.
    14. Krause, M.U., 2002. "Inter-Industry Wage Differentials and Job Flows," Other publications TiSEM 848f243e-a560-41a6-b689-6, Tilburg University, School of Economics and Management.
    15. Wong, Kit Pong & Yi, Long, 2013. "Irreversibility, mean reversion, and investment timing," Economic Modelling, Elsevier, vol. 30(C), pages 770-775.
    16. Komlan Koudahe & Aleksey Y. Sheshukov & Jonathan Aguilar & Koffi Djaman, 2021. "Irrigation-Water Management and Productivity of Cotton: A Review," Sustainability, MDPI, vol. 13(18), pages 1-21, September.
    17. Pierre‐Richard Agénor, 2004. "Macroeconomic Adjustment and the Poor: Analytical Issues and Cross‐Country Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 18(3), pages 351-408, July.
    18. Atal, Vidya & Bar, Talia & Gordon, Sidartha, 2016. "Project selection: Commitment and competition," Games and Economic Behavior, Elsevier, vol. 96(C), pages 30-48.
    19. Yonggu Kim & Keeyoung Shin & Joseph Ahn & Eul-Bum Lee, 2017. "Probabilistic Cash Flow-Based Optimal Investment Timing Using Two-Color Rainbow Options Valuation for Economic Sustainability Appraisement," Sustainability, MDPI, vol. 9(10), pages 1-16, October.
    20. Bergendahl, Goran, 2005. "Models for investment in electronic commerce--financial perspectives with empirical evidence," Omega, Elsevier, vol. 33(4), pages 363-376, August.
    21. Prelipcean, Gabriela & Boscoianu, Mircea, 2019. "Aspect Regarding the Design of Active Strategies for Venture Capital Financing – the Flexible Adjustment for Romania as a Frontier Capital Market," Proceedings of the ENTRENOVA - ENTerprise REsearch InNOVAtion Conference (2019), Rovinj, Croatia, in: Proceedings of the ENTRENOVA - ENTerprise REsearch InNOVAtion Conference, Rovinj, Croatia, 12-14 September 2019, pages 187-196, IRENET - Society for Advancing Innovation and Research in Economy, Zagreb.

    More about this item

    Keywords

    Farm Management; Risk and Uncertainty;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:eaae11:114536. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/eaaeeea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.