The impact of yield uncertainty on planting and water-saving decisions for high water consumption crops

Abstract

In this study, we propose an optimization-simulation approach to investigate the impact of yield uncertainty on the farmer's decisions for planting high water consumption crops. In addition, the influence of the subsidy programs provided by the government has also been investigated. We consider two different subsidy programs: one is the planting acreage subsidy (PAS) program; the other is the water-saving effort subsidy (WES) program. For each program, we have derived the optimal decisions for the farmer and the government. Furthermore, we investigated the impact of yield uncertainty on the farmer's profit, consumer surplus and social welfare, by numerical experiments. We show that the PAS program can bring greater improvements to the farmer's profit, consumer surplus and social welfare than the WES program, but it leads to higher government expenditure. HIGHLIGHTS Most of the crops planted in China are high water consumption crops.; Farmers' revenues from planting crops are damaged by the uncertainty of crop yield.; The subsidies provided by the government can motivate the farmer to plant more acreages of the crop and take more efforts to save water.; The subsidies can help farmers address the issue of yield uncertainty, thus increases their revenues and improve social welfare.;

Keywords

• agriculture
• high water consumption
• random yield
• social welfare
• subsidy
• water-saving effort