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Irrigation Technology Adoption in the Texas High Plains: A Real Options Approach

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  • Seo, Sangtaek
  • Segarra, Eduardo
  • Mitchell, Paul D.
  • Leatham, David J.

Abstract

Water scarcity has been a significant issue for several decades in the Texas High Plains, with agriculture identified as the main activity contributing to this scarcity. To address this issue, much effort has been devoted to developing and encouraging adoption of sophisticated irrigation systems with high levels of water application efficiency, such as the low energy precision application (LEPA) system, subsurface drip irrigation (SDI), and variable rate irrigation (VRI). In this study, the economic feasibility of these irrigation systems is evaluated in cotton farming in the Texas High Plains using a real options approach. Results find that only the LEPA system is profitable under current conditions. The VRI system is profitable with high cotton prices (above $0.72/lb), while SDI is not profitable under any conditions explored.

Suggested Citation

  • 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).
  • Handle: RePEc:ags:aaea06:21427
    DOI: 10.22004/ag.econ.21427
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    File URL: https://ageconsearch.umn.edu/record/21427/files/sp06se03.pdf
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    References listed on IDEAS

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    1. Metcalf, Gilbert E. & Hassett, Kevin A., 1995. "Investment under alternative return assumptions Comparing random walks and mean reversion," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1471-1488, November.
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    4. Balmann, Alfons & Musshoff, Oliver, 2002. "Real Options and Competition: The Impact of Depreciation and Reinvestment," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24934, European Association of Agricultural Economists.
    5. Janis M. Carey & David Zilberman, 2002. "A Model of Investment under Uncertainty: Modern Irrigation Technology and Emerging Markets in Water," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(1), pages 171-183.
    6. Price, T. Jeffrey & Wetzstein, Michael E., 1999. "Irreversible Investment Decisions In Perennial Crops With Yield And Price Uncertainty," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 24(1), pages 1-13, July.
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    8. Almas, Lal K. & Amosson, Stephen H. & Marek, Thomas H. & Colette, W. Arden, 2003. "Economic Feasibility Of Precision Irrigation In The Northern Texas High Plains," 2003 Annual Meeting, February 1-5, 2003, Mobile, Alabama 35249, Southern Agricultural Economics Association.
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    Cited by:

    1. Fan, Yubing & Park, Seong C., 2018. "A Meta-analysis of Water Conservation Policies in the Southern Ogallala Aquifer Region," 2018 Annual Meeting, February 2-6, 2018, Jacksonville, Florida 266656, Southern Agricultural Economics Association.
    2. Colette, W. Arden & Almas, Lal K., 2004. "Estimating The Mvp And Optimum Irrigation Level For Grain Sorghum Utilizing Evapotranspiration Requirements For The Texas Panhandle," 2004 Annual meeting, August 1-4, Denver, CO 20139, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Sangtaek Seo & Eduardo Segarra & Paul D. Mitchell & David J. Leatham, 2008. "Irrigation technology adoption and its implication for water conservation in the Texas High Plains: a real options approach," Agricultural Economics, International Association of Agricultural Economists, vol. 38(1), pages 47-55, January.

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    Resource /Energy Economics and Policy;

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