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An Expected Value of Sample Information (EVSI) Approach for Estimating the Payoff from a Variable Rate Technology

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  • Queiroz, Pedro W. V.
  • Perrin, Richard K.
  • Fulginiti, Lilyan E.
  • Bullock, David S.

Abstract

This paper examines the payoff to variable rate technology (VRT) using a Bayesian approach following literature on the expected value of sample information (EVSI). In each cell within a field, we compare the expected payoff from an optimal variable rate conditioned on a signal from that cell, with the expected payoff from a uniform rate technology (URT) that is optimal for all cells in the field. This comparison, when evaluated across the theoretical distribution of signals, provides an estimate of the expected gross benefit from VRT relative to URT. Under plausible assumptions, a closed-form algebraic solution relates this expected benefit to field and nitrogen response characteristics. We apply our approach to data from on-farm field-level experiments conducted by the Data-Intensive Farm Management Project (DIFM) (Bullock, et al. 2019), which examined nitrogen (N) response across cells for which soil electroconductivity (EC) served as the signal related to nitrogen response. We calculate the expected gross benefits to be about $1.81/ac, insufficient to support costs of VRT implementation. Our model provides quantitative estimates of the extent to which this poor outcome could be improved by a higher correlation between the EC signal and the state of nature of interest, by higher variability of the state of nature across cells, and by a sharper curvature of yield response to N.
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Suggested Citation

  • Queiroz, Pedro W. V. & Perrin, Richard K. & Fulginiti, Lilyan E. & Bullock, David S., 2023. "An Expected Value of Sample Information (EVSI) Approach for Estimating the Payoff from a Variable Rate Technology," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 48(01), January.
    • Handle: RePEc:ags:jlaare:320680
    DOI: 10.22004/ag.econ.320680
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    References listed on IDEAS

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    1. Luc Anselin & Rodolfo Bongiovanni & Jess Lowenberg-DeBoer, 2004. "A Spatial Econometric Approach to the Economics of Site-Specific Nitrogen Management in Corn Production," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(3), pages 675-687.
    2. David S. Bullock & James Lowenberg‐DeBoer, 2007. "Using Spatial Analysis to Study the Values of Variable Rate Technology and Information," Journal of Agricultural Economics, Wiley Blackwell, vol. 58(3), pages 517-535, September.
    3. Neil R. Miller, 2006. "Is Site-Specific Yield Response Consistent over Time? Does It Pay?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(2), pages 471-483.
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    6. Hurley, Terrance M. & Malzer, Gary L. & Kilian, Bernard, 2003. "Estimating Site-Specific Nitrogen Crop Response Functions: A Conceptual Framework And Geostatistical Model," 2003 Annual meeting, July 27-30, Montreal, Canada 21950, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    7. Schimmelpfennig, David, 2016. "Farm Profits and Adoption of Precision Agriculture," Economic Research Report 249773, United States Department of Agriculture, Economic Research Service.
    8. Richard K. Perrin, 1976. "The Value of Information and the Value of Theoretical Models in Crop Response Research," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 58(1), pages 54-61.
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    10. Hurley, Terrance M. & Oishi, Kikuo & Malzer, Gary L., 2005. "Estimating the Potential Value of Variable Rate Nitrogen Applications: A Comparison of Spatial Econometric and Geostatistical Models," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 30(2), pages 1-19, August.
    11. Matías L. Ruffo & Donald G. Bullock & Germán A. Bollero, 2009. "The Value of Variable Rate Technology: An Information-Theoretic Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(1), pages 209-223.
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    1. Brian E. Mills & B. Wade Brorsen & Davood Poursina & D. Brian Arnall, 2023. "Optimal grid size for site‐specific nutrient application," Agricultural Economics, International Association of Agricultural Economists, vol. 54(6), pages 854-866, November.

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