Elicitation of Irrigators' Risk Preferences from Observed Behaviour

17 Pages Posted: 6 Jul 2016

See all articles by Celine Nauges

Celine Nauges

University of Queensland - School of Economics

Sarah Ann Wheeler

University of South Australia

Alec Zuo

University of South Australia

Date Written: July 2016

Abstract

Water trading in the Murray–Darling Basin of Australia has developed to the point where it is a common adaptation tool used by irrigators, making it an apt case study to elicit the marginal value of irrigation water and irrigators' risk preferences in two key industries with differing levels of water dependence. Our data come from large‐scale and representative surveys of irrigated broadacre and horticultural farms in the Murray–Darling Basin over a 6‐year period. The marginal contribution of irrigation water to profit is estimated at $547 and $61/ML on average in horticulture and broadacre, respectively. Horticultural irrigators are found to be averse to the risk of large losses (downside risk) while broadacre irrigators are averse to the variability (variance) of profit.

Keywords: irrigation, marginal value of water, Murray–Darling Basin, profit function, risk preferences

Suggested Citation

Nauges, Céline and Wheeler, Sarah Ann and Zuo, Alec, Elicitation of Irrigators' Risk Preferences from Observed Behaviour (July 2016). Australian Journal of Agricultural and Resource Economics, Vol. 60, Issue 3, pp. 442-458, 2016, Available at SSRN: https://ssrn.com/abstract=2804803 or http://dx.doi.org/10.1111/1467-8489.12134

Céline Nauges

University of Queensland - School of Economics ( email )

Brisbane, QLD 4072
Australia

Sarah Ann Wheeler (Contact Author)

University of South Australia ( email )

37-44 North Terrace, City West Campus
Adelaide, South Australia 5001
Australia

Alec Zuo

University of South Australia ( email )

37-44 North Terrace, City West Campus
Adelaide, South Australia 5001
Australia

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