Expanding risk consideration in integrated models – The role of downside risk aversion in irrigation decisions

We present a bio-economic model that accounts for the effects of water and nitrogen use on the first three moments of profit margin distributions in Swiss maize production. We thus also account for downside risks in farmers' decision making processes, which extents currently used bio-economic modeling approaches that address agricultural water use. We find that because irrigation reduces the negative skewness of profit margin distributions, i.e. downside risk, farmers have an additional incentive to use irrigation more intensively. Not considering downside risks may thus imply an underestimation of agricultural water use.

► Irrigation decreases production risk in general and downside risks in particular. ► Neglecting downside risks may underestimate agricultural water use. ► Downside risks should be considered in bio-economic models.