Stéphane Couture

Irrigation water demand for the decision maker

This paper deals with the problems of estimating irrigation water demand. We propose an original method of estimation in two steps. First, we develop a dynamic programming model in order to explain the optimal irrigation management plan. Based on a microeconomic approach describing the farmers behavior, this economic model, introducing an agronomic model, and an algorithm of solution search, is used to compute a realistic database. Second, these data are used to estimate profit functions by a non-parametric method. The irrigation water demand function is estimated using a non-parametric derivation procedure.An application to irrigation water demand is proposed in the southwestern area of France where conflicts appear frequently. The same results appear for different climates: for small quantities of water available, irrigation water demand seems to be quite inelastic. If one increases the total quantity of water available, the shape of the curve changes and the demand appears more elastic. The threshold price at which the changes in price-responsiveness appears, depends on weather conditions and range from 0.30 F/m3 in a wet year to 1.60 F/m3 in a dry year. These results are crucial information for the regulator in order to analyze the effects of a water regulation policy, based on prices. The impact of an increase in the water price will depend not only on the climate but also on the location of the initial and final prices on the demand function.JEL classification: C14, C16, Q15

Is the Irrigation Water Demand Really Convex

The seasonal irrigation water demand under uncertainty, which lies at the core of this paper, is still very roughly known. We know, however, that irrigated agriculture accounts for a large proportion of water use, especially in many water-scarce areas. In this paper, we estimate the irrigation water demand, for various climatic conditions characterizing the distribution of the necessarily stochastic, demand functions under uncertainty. We use a dynamic programming model to represent the farmers decision program under uncertainty. A crop-growth simulation model (EPIC-PHASE), provides the response function to the decisions taken and climatic events and is linked to a CRRA utility function representing the farmers objective function. This model is used to generate the data allowing the estimation of irrigation water demand by a nonparametric procedure. An application to irrigation water demand is proposed in the South-West of France. We show that the estimated demand functions present four main areas: For very small quantities, where the farmer considers water as an essential input to crop growth, the demand is inelastic. The second area corresponds to mean quantities where the plant has reached a satisfactory level of growth; water is no more an essential input and is not yet a risk reducing input. The farmer is more responsive to change in water price. But, we find a third, non-intuitive, area for larger quantities where the water is a risk reducing input and the demand becomes inelastic again. The last area is classic, the water demand is obviously elastic for important total water quantities. This result is of great importance to analyze a regulation policy.

Optimising forest management under storm risk with a Markov decision process model

Windstorms generate windfalls that may lead to price decreases. Studies often focus on stochastic growth and price, but consider that there is no link between these two risks. In our model, we assume that storms generate windfalls and that these windfalls have an impact on timber price through volume and quality. The objective of this paper is to analyse the impact of these two effects on harvesting behaviour. We consider that the dynamic of the timber stock follows a Markov decision process and that the harvesting decision is a control variable. We solve the optimal harvesting problem under storm risk with a risk-averse forest owner and when the storm has an impact on production and price. We study the impact of a change in the storm risk distribution, the percentage of quality loss and risk aversion on the optimal harvesting decision. We show that the greater the storm risk is, the greater the harvesting will be. In addition, we observe no noticeable effect of an increase in the percentage of quality loss on harvesting. Moreover, when the forest owner’s risk aversion increases, the harvesting is reduced. Finally, we discuss our results, in particular, in relation to climate change.

Is forest insurance a relevant vector to induce adaptation efforts to climate change

Abstract• Key messageInsurance might be an efficient tool to strengthen adaptation of forest management to climate change. A theoretical model under uncertainty is proposed to highlight the effect, on adaptation decisions, of considering adaptation efforts in forest insurance contracts. Results show that insurance is relevant to increase adaptation efforts under some realistic conditions on forest owner’s uncertainty and risk preferences, and on the observability or not of adaptation efforts.• Context One of the challenges of forest adaptation to climate change is to encourage private forest owners to implement adaptation strategies.• Aims We suggest the analysis of forest insurance contracts against natural hazards as a vector to promote the implementation of adaptation efforts by private forest owners.• Methods We propose a theoretical model of insurance economics under risk and under uncertainty.• Results Our results indicate that when climate change makes the probability of the occurrence of the natural event uncertain, then it may be relevant to include adaptation efforts in the insurance contract, leading to an increase in the adaptation efforts of risk-averse and uncertainty-averse forest owners. In addition, we show that the relevance of insurance as a vector to promote adaptation efforts is greater when the forest owner’s effort is unobservable by the insurer as compared to a situation of perfectly observable effort.• Conclusion Under some realistic assumptions, the forest insurance contract seems to be a relevant tool to encourage forest owners to adapt to climate change.

Insurance Demand for Disaster-type Risks and the Separation of Attitudes toward Risk and Ambiguity: an Experimental Study

This article presents the results of an experiment designed to test theoretical predictions about the impact of public compensation schemes and ambiguity on insurance and self-insurance decisions. Consistent with theory, we find that government assistance significantly reduces willingness to pay (WTP) for insurance and self-insurance (compared with a free insurance market). As expected, we also find significant differences between WTPs for insurance under different types of government compensation programs. For example, results from our experiment confirm the prediction that the WTP for insurance is smaller under a “Fixed Help” program than under a “Contingent Fixed Help” program where the government assistance is conditioned to the purchase of an insurance policy. Thirdly, we find that ambiguity, i.e., uncertainty about probability, significantly increases WTPs for insurance. This result, which indicates that decision-makers are ambiguity averse, is in line with previous results on the impact of ambiguity on insurance demand for low probability risks. Lastly, our experiment provides a clear support for the hypothesis that attitude to risk and attitude to ambiguity are two independent phenomena. In fact in this experiment, decision-makers are both risk-seekers (i.e., the mean WTP for insurance is on average smaller than the expected value of the loss) and ambiguity averse (i.e., the mean WTP for insurance is on average higher for an ambiguous risk than for a ’risky’ risk).

Insurance Demand against Forest Fire Risk: Empirical Analysis on French Private Forest Owners

This paper deals with private forest owners’ insurance demand against forest fire risk. Econometric analysis is realized on a sample of forest owners from Aquitaine. It allows identifying determinants of participation to insurance from determinants explaining the difference of willingness-to-pay (WTP). More precisely, this article studies the impact of different types of public compensation: fixed help, contingent fixed help and insurance subsidy. We also analyse the role played by the expected loss of forestry income, self-insurance, uncertainty characterizing the probability of occurrence of natural risks (ambiguity), and the characteristics of owners and forest property. The results show that the fixed help system implemented by France has a negative impact on owner’s insurance decision, while a contingent fixed help seems to encourage owners to adopt insurance. Other factors allow explaining the participation to insurance (ambiguity, owners’ characteristics…), and the insurance demand (expected loss, past perception of a public help).

Hedging Strategies in Forest Management

The paper focuses on the choice of forest management strategies for natural hazards by nonindustrial owners, when forest provides nontimber services. We introduce a basic two-period model where the private owner hedges against natural hazards on his/her forest thanks to financial strategies (accumulation of savings) or to the adoption of sylvicultural practices. We show that: 1/ the harvesting rule, in the presence of amenity services and a random growth rate for forest, is smaller than the one predicted under the Faustmann’s rule; 2/ savings and sylvicultural pratices may be seen as perfectly substitutable tools. However, our analysis predicts that, depending on whether forest owners opt for the financial strategy or undertake sylvicultural practices, the harvesting rule displays a specific sensitivity to price effects and/or changes in the distribution of natural hazards.