NDLI: Investment in irrigation technology: an application of real options analysis

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Investment in irrigation technology: an application of real options analysis

Content Provider	AgEcon Search
Author	McClintock, Anthea
Abstract	Investment in irrigation infrastructure and technologies, particularlythose that reduce on-farm water use have become a major focus ofgovernment programs both at a State and Commonwealth level.Particular attention has been given to increasing the uptake of water“saving” technologies among irrigators. The design of programscapable of achieving government objectives at least cost requires anunderstanding of farm level investment decisions. In this context, theinfluence of uncertainty on decisions to invest in irrigation technologyand infrastructure is examined. The potential for uncertainty toinfluence investment decisions via strategies to manage risk isdemonstrated using the method of real options valuation. Theapproach is applied to case studies of investment in evaporationmitigation technologies. It is shown that there are circumstanceswhere uncertainty surrounding the value of water savings issignificant enough to influence the decision to invest in water savingtechnologies. The results also demonstrate that where uncertaintyexists, rates of subsidy to encourage faster uptake of thesetechnologies need to be higher than those indicated by traditional NPVanalysis. This is further exacerbated when irrigators are required torelinquish water entitlements in return for the subsidy.
Related Links	https://ageconsearch.umn.edu/record/47934/files/McClintock.pdf
Page Count	30
File Format	PDF
DOI	10.22004/ag.econ.47934
Language	English
Publisher	Australian Agricultural and Resource Economics Society (AARES)
Publisher Date	2009-01-01
Access Restriction	Open
Subject Keyword	Applied Economics Agricultural Economics Agri-economic Open Access Database Research in Applied Economics Research in Agricultural Economics Higher Study On Agricultural Economics Higher Study On Applied Economics Agricultural Research Documents Agrarian Economy & Research Higher Study Agri-economics Research in Economics Agri-economic Open Access Repository Statistics in Agricultural Economics Investment Irrigation Technology Real Options Uncertainty Subsidy
Content Type	Text
Resource Type	Article
Subject	Economics, Econometrics and Finance

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