A model of investment under uncertainty: modern irrigation technology and emerging markets in water.

Book Title: NA
Year Published: 2002
Month Published: NA
Author: Carey, J. M. ; Zilberman, D.
Book Group Author: NA

This article develops a stochastic dynamic model of irrigation technology adoption. It specifically examines the effect of a water market on a farm's decision to adopt modern water-conserving irrigation technology. The paper is based on estimates obtained by other researchers, and information obtained from California water districts and irrigation consultants in the USA. It predicts that farms will not invest in modern technologies unless the expected present value of investment exceeds the cost by a potentially large hurdle rate. The article also demonstrates that, contrary to common belief, water markets can delay adoption. The introduction of a market should induce farms with abundant (scarce) water supplies to adopt earlier (later) than they would otherwise. This article was motivated by evidence that, contrary to net present value predictions, farms wait until random events such as drought drive returns significantly above costs before investing in modern irrigation technologies.

Pages: 171 - 183
URL: http://0-search.ebscohost.com.catalog.library.colostate.edu/login.aspx?direct=true&AuthType=cookie,ip,url,cpid&custid=s4640792&db=lah&AN=20033040514&site=ehost-live
Volume: 84
Number: 1
Journal: American Journal of Agricultural Economics
Journal ISO: NA
Organization: NA
Publisher: NA
ISSN: 0002-9092

decision making, dynamic models, farms, finance, innovationadoption, investment, irrigation, markets, modernization, prices,stochastic models, technical progress, water conservation, water costs,water supply, California, USA, Pacific States of USA, Western States ofUSA, USA, North America, America, Developed Countries, OECD Countries,adoption of innovations, capital outlay, choice, United States ofAmerica, water supplies, watering, Agricultural Economics (EE110),Natural Resource Economics (EE115) (New March 2000), Supply, Demand andPrices (EE130), Marketing and Distribution (EE700), Investment, Financeand Credit (EE800), Soil Water Management (Irrigation and Drainage)(JJ800) (Revised June 2002) [formerly Soil Water Management], WaterResources (PP200), Mathematics and Statistics (ZZ100)

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