Stochastic efficiency analysis of alternative water conservation strategies
Stochastic efficiency with respect to an exponential utility function was used to determine utility-efficient water-conserving irrigation schedules for wheat and maize based on certainty equivalents. 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 increasing production variability with increasing levels of deficit irrigation, especially when rainfall has significant potential to contribute to the production process. Risk-averse decision makers are more willingly to adopt deficit irrigation schedules for maize due to increased effective rainfall. The conclusion is that the potential to use rainfall more effectively through deficit irrigation is a key variable determining adoption of deficit irrigation strategies by risk-averse decision makers. Localized weather forecasts may improve acceptance of deficit irrigation by risk-averse decision makers. The value of information for weather forecast might be low because of high risk premiums placed on full irrigation by risk-averse decision makers.
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- 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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