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Incorporating Uncertainty in the Economic Evaluation of Capital Investments for Water-Use Efficiency Improvements

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  • David Adamson
  • Adam Loch

Abstract

Long-run investments in water-use efficiency (WUE) are risky, particularly where water is required as a secure input. State-of-nature representations of supply outcomes provide an increased understanding of the vulnerability of capital and water users to adverse events. Using Californian data, we couple cost-benefit analysis to a state-contingent analysis approach to explore the riskiness of WUE investment payoffs and cash-flow outcomes when frequencies of states of nature change over the investment course. Critically, this allows us to represent decision-maker adaptation in the face of risk and uncertainty and the role of subsidy policy in those decisions.

Suggested Citation

  • David Adamson & Adam Loch, 2021. "Incorporating Uncertainty in the Economic Evaluation of Capital Investments for Water-Use Efficiency Improvements," Land Economics, University of Wisconsin Press, vol. 97(3), pages 655-671.
    • Handle: RePEc:uwp:landec:v:97:y:2021:i:3:p:655-671
    Note: DOI: 10.3368/wple.97.3.100119-0143R
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    File URL: http://le.uwpress.org/cgi/reprint/97/3/655
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    Citations

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    Cited by:

    1. Railey, Ashley & Adamson, David & Rushton, Jonathan, 2023. "Economic impact of point-of-care diagnostic testing on disease response for an African swine fever outbreak in the United States," 2023 Annual Meeting, July 23-25, Washington D.C. 335566, Agricultural and Applied Economics Association.
    2. Berbel, Julio & Expósito, Alfonso, 2022. "A decision model for stochastic optimization of seasonal irrigation-water allocation," Agricultural Water Management, Elsevier, vol. 262(C).
    3. Adam Loch & Christopher Auricht & David Adamson & Luis Mateo, 2021. "Markets, mis‐direction and motives: A factual analysis of hoarding and speculation in southern Murray–Darling Basin water markets," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 65(2), pages 291-317, April.

    More about this item

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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