Modeling irrigated agricultural production and water use decisions under water supply uncertainty

Abstract

Farmers make joint water and land use decisions for economic purposes based in part on water availability and reliability. A two‐stage economic production model is developed to examine the effects of hydrologic uncertainty and water prices on agricultural production, cropping patterns, and water and irrigation technology use. The model maximizes net expected farm profit from permanent and annual crop production with probabilistic water availability and a variety of irrigation technologies. Results demonstrate effects of water availability, price, and reliability on economic performance, annual and long‐run cropping patterns, and irrigation technology decisions. Variations in water price and availability affect the desirability of different irrigation technologies. Increased water supply reliability can raise the probability of higher economic returns and promote more effective use of water for permanent crops. Such economic benefits can be compared to costs of operational changes and programs to increase water supply reliability for agricultural areas.