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A Model of Investment under Uncertainty: Modern Irrigation Technology and Emerging Markets in Water

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 Carey, Janis M
Zilberman, David

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Abstract

This article develops a stochastic dynamic model of irrigation technology adoption. It predicts that farms will not invest in modern technologies unless the expected present value of investment exceeds the cost by a potentially large hurdle rate. The article also demonstrates that, contrary to common belief, water markets can delay adoption. The introduction of a market should induce farms with abundant (scarce) water supplies to adopt earlier (later) than they would otherwise. This article was motivated by evidence that, contrary to NPV predictions, farms wait until random events such as drought drive returns significantly above costs before investing in modern irrigation technologies. Copyright 2002 by American Agricultural Economics Association

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Article provided by American Agricultural Economics Association in its journal American Journal of Agricultural Economics.

Volume (Year): 84 (2002)
Issue (Month): 1 (February)
Pages: 171-83
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Handle: RePEc:bla:ajagec:v:84:y:2002:i:1:p:171-83

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  1. Yang, Wanhong & Isik, Murat, 2003. "Integrating Farmer Decision-Making to Target Land Retirement Programs," 2003 Annual meeting, July 27-30, Montreal, Canada 22062, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  2. Chokri Dridi & Madhu Khanna, 2004. "Irrigation Technology Adoption and Gains from Water Trading under Asymmetric Information," Others 0409005, EconWPA. [Downloadable!]
    Other versions:
  3. Tauer, Loren, 2006. "When to Get In and Out of Dairy Farming: A Real Option Analysis," 2006 Annual meeting, July 23-26, Long Beach, CA 21251, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
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  4. Katrin Millock & Céline Nauges & Åsa Löfgren, 2007. "Using Ex Post Data to Estimate the Hurdle Rate of Abatement Investments – An Application to the Swedish Pulp and Paper Industry and Energy Sector," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00272041_v1, HAL. [Downloadable!]
  5. Iwai, Nobuyuki & Emerson, Robert D. & Walters, Lurleen M., 2008. "Labor Cost and Technology Adoption: Real Options Approach for the Case of Sugarcane Mechanization in Florida," 2008 Annual Meeting, February 2-6, 2008, Dallas, Texas 6758, Southern Agricultural Economics Association. [Downloadable!]
  6. Murat Isik, 2004. "Incentives for Technology Adoption Under Environmental Policy Uncertainty: Implications for Green Payment Programs," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 27(3), pages 247-263, March. [Downloadable!] (restricted)
  7. Murat Isik, 2006. "Implications of alternative stochastic processes for investment in agricultural technologies," Applied Economics Letters, Taylor and Francis Journals, vol. 13(1), pages 21-27, January. [Downloadable!] (restricted)
  8. Dridi, Chokri & Khanna, Madhu, 2003. "Efficacy Of Water Trading Under Asymmetric Information And Implications For Technology Adoption," 2003 Annual meeting, July 27-30, Montreal, Canada 22140, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  9. Seo, Sangtaek & Segarra, Eduardo & Mitchell, Paul D. & Leatham, David J., 2006. "Irrigation Technology Adoption in the Texas High Plains: A Real Options Approach," 2006 Annual meeting, July 23-26, Long Beach, CA 21427, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  10. Key, Ross & Burton, Robert & Featherstone, Allen, 2006. "Agricultural Health and Safety: A Research Agenda for Agricultural Economists," 2006 Annual Meeting, February 5-8, 2006, Orlando, Florida 35461, Southern Agricultural Economics Association. [Downloadable!]
  11. Reto Foellmi & Urs Meister, 2004. "Enhancing Efficiency of Water Supply - Product Market Compoetition versus Trade," Working Papers 0025, University of Zurich, Institute for Strategy and Business Economics (ISU). [Downloadable!]
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  12. Oliver Musshoff & Martin Odening & Alfons Balmann & Norbert Hirschauer, 2003. "Is the myopic investor right? Numerical evidence for systematic overestimation of investment reluctance for real options," Computing in Economics and Finance 2003 305, Society for Computational Economics. [Downloadable!]
  13. Alcon, Francisco & De Miguel, María Dolores & Burton, Michael, 2008. "Adopción de tecnología de distribución y control del agua en las Comunidades de Regantes de la Región de Murcia," Economia Agraria y Recursos Naturales, Spanish Association of Agricultural Economists, vol. 8(1). [Downloadable!]
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