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Stochastic efficiency optimisation of alternative agricultural water use strategies

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  • Grove, Bennie
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    Abstract

    Mathematical programming was used to optimise utility efficient deficit irrigation schedules for maize in Vaalharts, based on certainty equivalence assuming an exponential utility function. Total gross margin risk resulting from production risk of alternative deficit irrigation practices was quantified using an irrigation simulation model and stochastic budgeting procedures. Results showed that the portfolio of irrigation schedules for a risk averse farmer may include schedules with high production risk, due to the interaction of resource use between alternatives when water is limited. Owing to the difficulty of implementing the best portfolio of irrigation schedules, the optimised schedules may best be used to benchmark the efficiency of second best alternatives that are easier to implement. Ignoring risk may underestimate the value decision-makers attach to the security of water supply and policy-makers should take cognisance of this result.

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    File URL: http://purl.umn.edu/10136
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    Bibliographic Info

    Article provided by Agricultural Economics Association of South Africa (AEASA) in its journal Agrekon.

    Volume (Year): 45 (2006)
    Issue (Month): 4 (December)
    Pages:

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    Handle: RePEc:ags:agreko:10136

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    Web page: http://www.aeasa.org.za/
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    Keywords: Resource /Energy Economics and Policy;

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    1. Kling, Catherine L. & Weinberg, Marca & Wilen, James, 1993. "Water Markets and Water Quality," Staff General Research Papers 1572, Iowa State University, Department of Economics.
    2. Hardaker, J. Brian & Lien, Gudbrand D., 2003. "Stochastic Efficiency Analysis With Risk Aversion Bounds: A Simplified Approach," Working Papers 12954, University of New England, School of Economics.
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