60% Success at 200 feet

20% Dig upto 250 feet

14,430 0

5,603 - 6,182

40% No success at 200 feet

961

- 8,929
80% Don't dig further
- 200 - 9,616

Color chart
Inputs
Probabilities
Expected Payoffs to farmers
Expected Payoffs to DPDS
Payoffs to farmers
Payoffs to DPDS

Payof to
DPDS

5,953
30% Success
7,441
10% 50% waiver
- 11,750
70% Failure
- 250 - 12,020

90% 20% waiver

- 12,050

10% 50% waiver

- 9,400

90% 20% waiver

- 9,640

Cost structure
Base Cost
Additional cost
Farmer Payof

0
81
14,352

5
75
14,430

Payof to
farmer

23,409
19,261

- 250

- 250

Base cost
Additional amount
Monetary value of well
Drilling cost
Success ratio
Avg depth
Extra depth (upto)
Percentage of failed wells dug extra
Success ratio of extra dug wells
Finance from bank
Interest cost

Case
Backward
Non backward

Prob

5 per foot
75 per foot
40,000
50 per foot
60%
200 feet
250 feet
20%
30%
80%
5%

Waiver
10%
50%
90%
20%

- 200
Assumptions
The farmer initially borrows for 200 feet only
The farmer pays 20% of the digging cost from his pocket
The Bank receives the enitre amount borrowed + the interest
- 200

10
69
14,508

20
30
56
44
14,663 14,819

40
50
60
65
31
19
7
0
14,974 15,130 15,285 15,369

Do not test, base cost=5, addl cost=75

0.71 Expert says dig

1527.864
2339.01
>>> Test
1527.86
0.29 Expert says do not dig

Payofs
Using goal
seek
30

0.8 Water
5452.7619

0.2 No water
-10116

-500

*Assumption:
We dig only up to 200 feet

Prob.
Prob.
Prob.
Prob.
Prob.

Of
Of
Of
Of
Of

water
water|expert says dig
water|expert says do not dig
expert saying dig
expert saying do not dig

Cost of survey

Assumption:
We dig only up to 200 feet

0.6 (given)
0.8 (given)
0.1 (given)
0.71
0.29

-500