Optimisation of water procurement decisions in an irrigation district: the role of option contracts

Rey Vicario, Dolores and Calatrava Sierra, Javier and Garrido Colmenero, Alberto (2016). Optimisation of water procurement decisions in an irrigation district: the role of option contracts. "Australian Journal of Agricultural And Resource Economics", v. 1 (n. 60); pp. 130-154. ISSN 1364-985X. https://doi.org/10.1111/1467-8489.12110.

Description

Title: Optimisation of water procurement decisions in an irrigation district: the role of option contracts
Author/s:
  • Rey Vicario, Dolores
  • Calatrava Sierra, Javier
  • Garrido Colmenero, Alberto
Item Type: Article
Título de Revista/Publicación: Australian Journal of Agricultural And Resource Economics
Date: January 2016
ISSN: 1364-985X
Volume: 1
Subjects:
Faculty: E.T.S.I. Agrónomos (UPM) [antigua denominación]
Department: Economía Agraria, Estadística y Gestión de Empresas
Creative Commons Licenses: Recognition - No derivative works - Non commercial

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Abstract

Water supply instability is one of the main risks faced by irrigation districts and farmers. Water procurement decision optimisation is essential in order to increase supply reliability and reduce costs. Water markets, such as spot purchases or water supply option contracts, can make this decision process more flexible. We analyse the potential interest in an option contract for an irrigation district that has access to several water sources. We apply a stochastic recursive mathematical programming model to simulate the water procurement decisions of an irrigation district?s board operating in a context of water supply uncertainty in south-eastern Spain. We analyse what role different option contracts could play in securing its water supply. Results suggest that the irrigation district would be willing to accept the proposed option contract in most cases subject to realistic values of the option contract financial terms. Of nine different water sources, desalination and the option contract are the main substitutes, where the use of either depends on the contract parameters. The contract premium and optioned volume are the variables that have a greater impact on the irrigation district?s decisions. Key words: Segura Basin, stochastic recursive programming, water markets, water supply option contract, water supply risk.

Funding Projects

TypeCodeAcronymLeaderTitle
Government of SpainRTA2010‐00109‐C04‐03UnspecifiedUnspecifiedUnspecified

More information

Item ID: 40900
DC Identifier: http://oa.upm.es/40900/
OAI Identifier: oai:oa.upm.es:40900
DOI: 10.1111/1467-8489.12110
Official URL: https://doi.org/10.1111/1467-8489.12110
Deposited by: Memoria Investigacion
Deposited on: 20 Jun 2016 15:10
Last Modified: 10 Jun 2019 10:18
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