Irrigation water policy analysis using a business simulation game

Abstract

Despite numerous studies on farmers' responses to changing irrigation water policies, uncertainties remain about the potential of water pricing schemes and water quotas to reduce irrigation. Thus far, policy impact analysis is predominantly based upon rational choice models that assume behavioral assumptions, such as a perfectly rational profit‐maximizing decision maker. Also, econometric techniques are applied which could lack internal validity due to uncontrolled field data. Furthermore, such techniques are not capable of identifying ill‐designed policies prior to their implementation. With this in mind, we apply a business simulation game for ex ante policy impact analysis of irrigation water policies at the farm level. Our approach has the potential to reveal the policy‐induced behavioral change of the participants in a controlled environment. To do so, we investigate how real farmers from Germany, in an economic experiment, respond to a water pricing scheme and a water quota intending to reduce irrigation. In the business simulation game, the participants manage a “virtual” cash‐crop farm for which they make crop allocation and irrigation decisions during several production periods, while facing uncertain product prices and weather conditions. The results reveal that a water quota is able to reduce mean irrigation applications, while a water pricing scheme does not have an impact, even though both policies exhibit equal income effects for the farmers. However, both policies appear to increase the variation of irrigation applications. Compared to a perfectly rational profit‐maximizing decision maker, the participants apply less irrigation on average, both when irrigation is not restricted and when a water pricing scheme applies. Moreover, the participants' risk attitude affects the irrigation decisions.

Comparing Compliance Behaviour of Students and Farmers. An Extra‐laboratory Experiment in the Context of Agri‐environmental Nudges in Germany

“…Experiments designed as business management games can also inform policy‐makers. In agricultural economics research such business management games have been conducted with students (Mußhoff and Hirschauer, ) as well as with farmers (Holst et al ., ; Dörschner and Mußhoff, ; Buchholz et al ., ; Hermann et al ., ), but no study has compared behavioural differences between students and farmers in the same experiment. Cason and Wu () also claim that subject pool effects in the field of agricultural economics are insufficiently studied.…”

Reviewing the decision‐making behavior of irrigators

“…Secondary Environmental or climate related Weather variability (#2, for example, Foster, Brozovic, & Butler, ) Pressure to reduce greenhouse gas production (#1, for example, Arbuckle Jr. et al, ) Farm related Natural advantage (#1, Holmes & Lee, ) Policy related Water quota (#1, Buchholz et al, ) Pressure from authorities to increase production (#1, D. J. Lee et al, ) Introduction of water market (#1, S. Wheeler, Bjornlund, Zuo, & Shanahan, ) Economy related Economic value of water (#2, for example, Gómez‐Limón & Martínez, ) Changes in global economic conditions (#1, for example, H. Lee et al, ) Economies of density (#1, Holmes & Lee, ) Market related Crop price fluctuations (#1, H. Lee et al, ) Utility generated by resources (#1, Gómez‐Limón & Martínez, ) Social Observation of neighbors' action (#1, Andriyas & McKee, ) Population growth (#1, for example, Foster et al, ) …”

“…Policy related Water quota (#1, Buchholz et al, ) Pressure from authorities to increase production (#1, D. J. Lee et al, ) Introduction of water market (#1, S. Wheeler, Bjornlund, Zuo, & Shanahan, ) …”

“…Key Environmental or climate related Risks associated with climate change, climate variability (#15, for example, Bryan, Deressa, Gbetibouo, & Ringler, ; Abid et al, ) Water availability (#9, for example, Marques et al, ) Farm related Crop water requirement (#3, for example, Andriyas & McKee, ) Policy related Water price (#4, for example, Buchholz, Holst, & Musshoff, ; Marques et al, ) …”

Farmers’ willingness to invest in livestock disease control: the case of voluntary vaccination against bluetongue

“…One promising application of such experiments are so-called business simulation games (Holst et al, 2014;Buchholz et al, 2016;Moser and Mußhoff, 2016;Freudenreich and Mußhoff, 2017;Hermann et al, 2017). Within a decision-making environment that is made as realistically as possible, farmers in aforementioned studies were asked to make a series of production decisions under different policy designs (the treatment effect).…”