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Farm-Level Risk Management Using Irrigation and Weather Derivatives

Published online by Cambridge University Press:  26 January 2015

Shanshan Lin ,
Jeffrey D. Mullen  and
Gerrit Hoogenboom
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Abstract

An agronomic crop growth model—the Decision Support System for Agro-Technology Transfer—and a constant relative risk aversion utility function are used to examine corn irrigation strategies in Mitchell County, Georgia. Precipitation contracts are designed to help farmers manage risk. Three conclusions originate from the findings. First, the optimal irrigation strategy can greatly increase producers' certainty-equivalent revenue. Second, changes in water pricing policy would have a limited impact on the amount of water used. And third, across levels of risk preference, the precipitation contracts are not effective in increasing certainty-equivalent revenue or reducing cumulative water use.

Keywords

irrigation risk managementwater pricing policyweather derivative contractD8G22Q15Q25
Type
Invited Paper Sessions
Information
Journal of Agricultural and Applied Economics , Volume 40 , Issue 2 , August 2008 , pp. 485 - 492
Copyright
Copyright © Southern Agricultural Economics Association 2008

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