Input Use and Capacity Constraint Under Uncertainty: The Case of Irrigation

33 Pages Posted: 21 Oct 2002

See all articles by Pascal Favard

Pascal Favard

Universite de La Rochelle; Université de Tours

Philippe Bontems

University of Toulouse 1 - Groupe de Recherche en Economie Mathématique et Quantitative (GREMAQ); French National Institute for Agricultural Research (INRA) - Mission Informatique

Date Written: September 2002

Abstract

In this paper we consider a two periods model of cropping using irrigation. The farmer takes two kind of decisions, one related to the level of investment in irrigation capacity and the other one to the irrigation level in each period. In the first period, decisions are taken under uncertainty on the rainfall level which is resolved at the beginning of the second period. Assuming a CARA utility function, we show that taxing the investment may entail an increase in preventive irrigation although the investment decreases. Moreover, in the case of a logistic production function, the total water use is non monotonic with respect to the price of investment. Indeed, taxing capital may induce the farmer to increase the total level of irrigation although the irrigation capacity decreases. Surprisingly, the impact of an increase of water price is generally ambiguous even assuming risk neutrality.

Keywords: Irrigation, Investment, Uncertainty, Risk Aversion

JEL Classification: D8, Q15

Suggested Citation

Favard, Pascal and Favard, Pascal and Bontems, Philippe, Input Use and Capacity Constraint Under Uncertainty: The Case of Irrigation (September 2002). Available at SSRN: https://ssrn.com/abstract=335000 or http://dx.doi.org/10.2139/ssrn.335000

Pascal Favard (Contact Author)

Universite de La Rochelle ( email )

FLASH
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France

Université de Tours ( email )

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HOME PAGE: http://pascal.favard.free.fr/SPF/Menu__.html

Philippe Bontems

University of Toulouse 1 - Groupe de Recherche en Economie Mathématique et Quantitative (GREMAQ) ( email )

Manufacture des Tabacs
21 Allees de Brienne
Toulouse, 31000
France
(33) 05 61 12 85 22 (Phone)
(33) 05 61 12 85 20 (Fax)

French National Institute for Agricultural Research (INRA) - Mission Informatique ( email )

Toulouse School of Economics, INRA, Manufacture
des tabacs, Allée de Brienne
Toulouse, 31000
France
(33) 05 61 12 85 22 (Phone)
(33) 05 61 12 85 20 (Fax)

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