Farm-Level Risk Management Using Irrigation and Weather Derivatives
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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.