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Optimal Investment in Precision Irrigation Systems: A Dynamic Intraseasonal Approach

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  • Lichtenberg, Erik

Abstract

We present a dynamic intraseasonal model of optimal investment in irrigation precision that takes into reductions in disease losses and acceleration of crop growth as well as water savngs. We derive the optimal levels of water use, investment in precision equipment and timing of harvest under maximization of the present value of profit. Greater precision of water application increases effective water use but reduces the amount of water applied at each point in time, however, only if effective water demand is inelastic with respect to precision. Profit-maximizing investment in irrigation precision equates the present value of these increments in profit accumulating over the course of the season with the marginal cost of that investment. The profit-maximizing choice of a harvest date equates the additional profit gained from additional growth by delaying the harvest one period with the rental value of the site occupied by the crop plus the inventory cost of holding the plants on site for an additional period. An empirical application analyzes commercial hydroponic snapdragon Econometric analysis shows that the use of real-time soil moisture information to adjust irrigation water application reduces time to the first and last harvest of flowers by an average of almost a month, regardless of cultivar, allowing the operation to harvest one additional crop per year. The use of real-time soil moisture information to adjust irrigation water application also increases yields. Investment in a wireless sensor network covering the entire operation increases profit by over a third.

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  • Lichtenberg, Erik, 2013. "Optimal Investment in Precision Irrigation Systems: A Dynamic Intraseasonal Approach," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 149920, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea13:149920
    DOI: 10.22004/ag.econ.149920
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    Cited by:

    1. Xie, Yang & Zilberman, David, 2014. "The Economics of Water Project Capacities and Conservation Technologies," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169820, Agricultural and Applied Economics Association.

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