Production choices with water markets and risk aversion: the role of initial allocations and forward trading

Bontems, Philippe; Nauges, Celine

doi:10.1093/erae/jby033

Cited by 9 publications

(7 citation statements)

References 47 publications

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“…The studied policy scenarios focus on the deviations of endogenous variables (the unknown variables in the equation, obtained by solving the model) from their baseline levels caused by exogenous shocks (the known variables in the equation, set by people). From an economic perspective, to maintain the normal operation of water supply projects, agricultural water prices should be at or above operational costs (Bontems & Nauges, 2019). Hence, we assumed for modeling purposes that the future agricultural water price level should be increased by 19.14%.…”

Section: Policy Scenariosmentioning

confidence: 99%

Analysis of agriculture water pricing reform in a water-deficit area of Northwest China

Kang

Lin

et al. 2022

Water Policy

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Northwest China frequently experiences significant droughts and water shortages. To better balance the supply and demand, and provide sufficient funds for water resource projects, this study applied a computable general equilibrium model to construct an agricultural water pricing policy model that depends on the crops' economic value and regional water use characteristics. Wuwei City in Gansu Province was used as a case study to test the model. Three agricultural water price increase policies and three supporting subsidy policies were developed. The study quantitatively investigated the impact of these policies on the agricultural economy, water use, and efficiency of water use from different water sources. The results indicated that water pricing reform promotes water conservation and improves water use efficiency. Subsidies can reduce the negative impact of water pricing policies on the agricultural economy. Economic crops (e.g. vegetables) are more sensitive to water prices compared to food crops (e.g. wheat). Finally, to best our knowledge, this study provided the best water pricing reform scenario expected to be the most effective for local development.

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Section: Policy Scenariosmentioning

confidence: 99%

Analysis of agriculture water pricing reform in a water-deficit area of Northwest China

Kang

Lin

et al. 2022

Water Policy

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“…The priority class system thus better …ts small-scale basins, for which climate shocks can be assumed to exert uniform e¤ects on all farmers. In this case, it is plausible that e¢ cient quantities only depend on total supply, as in (8).…”

Section: Buying Water In Advance: Priority Classesmentioning

confidence: 99%

“…Under uniform rationing, the left-hand-side of ( 18) increases with , as c x > 0; and the right-hand-side is easily shown to be increasing in a, 8 , and therefore decreasing in . Because the right-hand-side does not depend on x, and c is convex in x, we obtain that x R ( ) is also decreasing in .…”

Section: Introducing Risk-aversion and Insurancementioning

confidence: 98%

Water allocation, crop choice, and priority services

Salanié

Zaporozhets

2021

J Public Economic Theory

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We analyze the problem of allocating irrigation water among heterogenous farmers when water supply is stochastic. If farmers are risk-neutral, a spot market for water is e¢ cient; while the oft-used uniform rationing system is ine¢ cient, both ex-ante and ex-post. Indeed, we show that it leads farmers to overexpose to risk, thus making shortages more severe and more frequent in case of drought. We propose instead a regulation by priority classes extending Wilson (1989), and we derive an e¢ ciency result. We characterize the set of farmers that would win or loose from such a reform. We also argue that a system of priority classes may be preferred to a spot market system, because scarcity is easier to manage ex-ante than ex-post, and because this system facilitates the supply of insurance to risk-averse agents.The authors acknowledge funding from ANR under grant ANR-17-EURE-0010 (Investissements d'Avenir program). We have bene…tted from discussions in various seminars; in particular, we thank Dominique Bureau and Katrin Erdlenbruch for useful comments. The …rst author also acknowledges …nancial support from the research foundation TSE-Partnership.

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“…Our analysis adds to the sparse literature investigating the production decisions of risk-averse farmers in the presence of multiple risks (Coyle 1999;Isik 2002;Serra et al 2006;Ridier, Chaib and Roussy 2016;Bontems and Nauges 2019). 3 In particular, we contribute to the literature by analysing the influence of background risk on cooperative decisions, in a context of strategic uncertainty.…”

Section: Introductionmentioning

confidence: 99%

“…Coyle (1999),Isik (2002) Serra et al (2006) andBontems and Nauges (2019) have also analyzed farmers' production decisions in a mean-variance framework in the context of multiple risks (including background risk forBontems and Nauges (2019)). Our contribution extends the analysis of production decisions in a risky environment to a public good game context.…”

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confidence: 99%

Adoption of Environment-Friendly Agricultural Practices with Background Risk: Experimental Evidence

Lefebvre¹,

Midler²,

Bontems³

2020

Environ Resource Econ

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Agriculture is one of the economic sectors most exposed to exogenous risks such as climate hazards and price volatility on agricultural markets. Agricultural policies targeting the adoption of environment-friendly but potentially risk-increasing practices cannot ignore this challenge. Farmers have indeed to decide if they take the foreground risk associated with the adoption of environmentfriendly practices, while simultaneously facing exogenous background risk beyond their control. Using a theoretical model and a public good experiment, we analyse the adoption of agri-environmental practices and the effect of agri-environmental subsidies in a context where risks are both foreground and background. While most of the literature on background risk focuses on its impact on individual decisions, we analyse the influence of background risk in a context of strategic uncertainty (contribution to a public good). The results highlight the potential synergies between greening the CAP and supporting risk management. We find that background risk discourages the adoption of green practices, although it affects all farmland independently from the farmer's choice of practices (environment friendly or conventional). An incentive payment per hectare of land farmed with green practices increases the adoption of risk-increasing practices but is significantly less effective in the presence of background risk.

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Production choices with water markets and risk aversion: the role of initial allocations and forward trading

Cited by 9 publications

References 47 publications

Analysis of agriculture water pricing reform in a water-deficit area of Northwest China

Analysis of agriculture water pricing reform in a water-deficit area of Northwest China

Water allocation, crop choice, and priority services

Adoption of Environment-Friendly Agricultural Practices with Background Risk: Experimental Evidence

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