Dharwar Drilling Society

Checking Liability Figures

Liability is said to be 60% or 84%. Why?

Cost = Rs.100 (say), Bank loan = Rs.80 (80% loan), Failure (normal case) Govt. subsidy = 20% of Rs.80 = Rs.16 Liability = Rs.100 Rs.16 = Rs.84.

Checking Liability Figures

Liability is said to be 60% or 84%. Why?

Cost = Rs.100 (say), Bank loan = Rs.80 (80% loan), Failure (special case) Govt. subsidy = 50% of Rs.80 = Rs.40 Liability = Rs.100 Rs.40 = Rs.60.

Without DDS
Apply for loan
Receive loan

Bank

Start digging

Farmer

Govt.

Without DDS
Apply for loan
Receive loan Repay liability Stop digging Apply for subsidy

Bank

Farmer
Receive subsidy

Govt.

Without DDS
Apply for loan
Receive loan Repay liability Farmer does digging Operation Apply for subsidy

Bank

Farmer
Receive subsidy

Govt.

Summary of activity
6

Functioning of DDS
Bank
Apply for loan Apply to dig well Receive loan

Farmer

DDS
Start digging

Govt.

Functioning of DDS
Bank
Apply for loan Receive loan Repay loan Apply for subsidy

Apply to dig well

Farmer
Pay digging cost

DDS
Receive subsidy Stop digging

Govt.

Functioning of DDS
Bank
Apply for loan Receive loan Repay loan Apply for subsidy

Apply to dig well

Farmer
Pay digging cost

DDS
Receive subsidy DDS does digging operation

Govt.

Summary of activity
9

Pertinent Questions

Why should a farmer approach DDS?

Why should DDS be in this business? What is its operating principle? How will DDS interact with the farmers to take care of its operations?

10

Farmer without DDS

Hit water

Go for drilling

Do not hit water

Do not go for drilling

11

Farmer without DDS

Hit water at 200ft Go for drilling

Do not hit water at 200 ft

Do not go for drilling

12

Farmer without DDS

Farmer from Non-Backward Class

Expected Monetary Value

(uw: monetary value of well) Hit water at 200ft EMV = 10000 + uw

Go for drilling

Do not hit water at 200 ft

EMV = 10000 + 1600 = 8400

EMV = 0 Do not go for drilling

13

Farmer without DDS

Farmer from Non-Backward Class

Expected Monetary Value

(uw: monetary value of well) Hit water at 200ft Prob: 0.6 Go for drilling EMV = uw10000

Do not hit water at 200 ft Prob: 0.4 EMV = 0 Do not go for drilling

EMV = 10000 + 1600 = 8400

14

Farmer without DDS

Farmer from Non-Backward Class

Expected Monetary Value

(uw: monetary value of well) Hit water

Go for drilling

EMV = 0.6uw 9360

Do not hit water

EMV = 0 Do not go for drilling

15

Farmer without DDS

Farmer from Backward Class

Expected Monetary Value

(uw: monetary value of well) Hit water at 200ft Prob: 0.6 Go for drilling EMV = uw10000

Do not hit water at 200 ft Prob: 0.4 EMV = 0 Do not go for drilling

EMV = 10000 + 4000 = 6000

16

Farmer without DDS

Farmer from Backward Class

Expected Monetary Value

(uw: monetary value of well) Hit water

Go for drilling

EMV = 0.6uw 8400

Do not hit water

EMV = 0 Do not go for drilling

17

With DDS

Drill with DDSs help

Drill but without DDS

Do not go for drilling

18

With DDS
Hit water at 200ft

Hit water at 250ft Dig until 250ft No water Well declared aat 250ft failure here

No water at 200ft

Abandon

19

With DDS
Hit water at 200ft

Hit water at 250ft Dig until 250ft No water at 250ft

No water at 200ft

Well declared a failure here

Abandon

20

With DDS
Farmers view:
Hit water at 200ft

EMV = uw 200(b+a)

Hit water at 250ft

EMV = uw 250(b+a)

Dig until 250ft No water at 250ft EMV = 250b

No water at 200ft

Well declared a failure here

Abandon

EMV = 200b

Expected Monetary Value

uw: monetary value of well b : base rate that farmers pay 21 a : additional rate for successful farmers

With DDS
Farmers view:
Hit water at 200ft Prob: 0.6
A

EMV = uw 200(b+a)

Hit water at 250ft Prob: 0.3 Prob: 0.7 No water at 250ft

EMV = uw 250(b+a)

Dig until 250ft Prob: 0.2 Prob: 0.4 No water at 200ft Prob: 0.8 Abandon

EMV = 250b

Well declared a failure here

EMV = 200b

Expected Monetary Value

uw: monetary value of well b : base rate that farmers pay 22 a : additional rate for successful farmers

With DDS
Farmers view:
Hit water at 200ft Prob: 0.6
A

EMV = uw 200(b+a)

Dig until 250ft Prob: 0.2 Prob: 0.4 No water at 200ft Prob: 0.8 Abandon

EMV = 0.3uw 250b 75a

Well declared a failure here

EMV = 200b

Expected Monetary Value

uw: monetary value of well b : base rate that farmers pay 23 a : additional rate for successful farmers

With DDS
Farmers view:
Hit water at 200ft Prob: 0.6
A

EMV = uw 200(b+a)

Prob: 0.4 No water at 200ft

EMV = 0.06uw 210b 15a

Expected Monetary Value

uw: monetary value of well b : base rate that farmers pay 24 a : additional rate for successful farmers

With DDS
Farmers view:

EMV = 0.624uw 204b 126a

Expected Monetary Value

uw: monetary value of well b : base rate that farmers pay 25 a : additional rate for successful farmers

With DDS
Farmers view:
Farmer from Non-Backward Class

Drill with DDSs help

EMV = 0.624uw 204b 126a

Drill but without DDS

EMV = 0.6uw 9360

Do not go for drilling

EMV = 0

26

With DDS
Farmers view:
Farmer from Backward Class

Drill with DDSs help

EMV = 0.624uw 204b 126a

Drill but without DDS

EMV = 0.6uw 8400

Do not go for drilling

EMV = 0

27

With DDS
DDSs view:
Farmer from Non-Backward Class Hit water at 200ft Prob: 0.6
A

Prob: 0.4 No water at 200ft

EMV = 200(b+a) 10000 Hit water at 250ft Prob: 0.3 Dig until 250ft Prob: 0.2 Prob: 0.7 No water at 250ft

EMV = 1600 + 250(b+a) 12500

EMV = 1600 + 250b 12500

Well declared a failure here

Prob: 0.8 Abandon

EMV = 1600 + 200b 10000

Expected Monetary Value

uw: monetary value of well b : base rate that farmers pay 28 a : additional rate for successful farmers

With DDS
DDSs view:
Farmer from Non-Backward Class Hit water at 200ft Prob: 0.6
A

EMV = 200(b+a) 10000

Dig until 250ft Prob: 0.2 Prob: 0.4 No water at 200ft Prob: 0.8 Abandon

EMV = 250b + 75a 10900

Well declared a failure here

EMV = 1600 + 200b 10000

Expected Monetary Value

uw: monetary value of well b : base rate that farmers pay 29 a : additional rate for successful farmers

With DDS
DDSs view:
Farmer from Non-Backward Class Hit water at 200ft Prob: 0.6
A

EMV = 200(b+a) 10000

Prob: 0.4 No water at 200ft

EMV = 210b + 15a 8900

Expected Monetary Value

uw: monetary value of well b : base rate that farmers pay 30 a : additional rate for successful farmers

With DDS
DDSs view:
Farmer from Non-Backward Class

EMV =204b + 126a 9560

Expected Monetary Value

uw: monetary value of well b : base rate that farmers pay 31 a : additional rate for successful farmers

With DDS
DDSs view:
Farmer from Non-Backward Class

Drill with DDSs help

EMV = 204b + 126a 9560

Drill but without DDS

EMV = 0

Do not go for drilling

EMV = 0

32

With DDS
DDSs view:
Farmer from Backward Class Hit water at 200ft Prob: 0.6
A

Prob: 0.4 No water at 200ft

EMV = 200(b+a) 10000 Hit water at 250ft Prob: 0.3 Dig until 250ft Prob: 0.2 Prob: 0.7 No water at 250ft

EMV = 4000 + 250(b+a) 12500

EMV = 4000 + 250b 12500

Well declared a failure here

Prob: 0.8 Abandon

EMV = 4000 + 200b 10000

Expected Monetary Value

uw: monetary value of well b : base rate that farmers pay 33 a : additional rate for successful farmers

With DDS
DDSs view:
Farmer from Backward Class Hit water at 200ft Prob: 0.6
A

EMV = 200(b+a) 10000

Dig until 250ft Prob: 0.2 Prob: 0.4 No water at 200ft Prob: 0.8 Abandon

EMV = 250b + 75a 8500

Well declared a failure here

EMV = 1600 + 200b 10000

Expected Monetary Value

uw: monetary value of well b : base rate that farmers pay 34 a : additional rate for successful farmers

With DDS
DDSs view:
Farmer from Backward Class Hit water at 200ft Prob: 0.6
A

EMV = 200(b+a) 10000

Prob: 0.4 No water at 200ft

EMV = 210b + 15a 6500

Expected Monetary Value

uw: monetary value of well b : base rate that farmers pay 35 a : additional rate for successful farmers

With DDS
DDSs view:
Farmer from Backward Class

EMV =204b + 126a 8600

Expected Monetary Value

uw: monetary value of well b : base rate that farmers pay 36 a : additional rate for successful farmers

With DDS
DDSs view:
Farmer from Backward Class

Drill with DDSs help

EMV = 204b + 126a 8600

Drill but without DDS

EMV = 0

Do not go for drilling

EMV = 0

37

DDSs Point of View

DDSs Payoffs:

From farmers from non-backward class 204b + 126a 9560 From farmers from backward class 204b + 126a 8600 Expected payoff 0.9(204b + 126a 9560) + 0.1(204b + 126a 8600) = 204b + 126a 9464
38

DDSs Point of View

DDSs Requirement: DDS operates on a no-profit no-loss principle Hence for DDS, 204b + 126a 9464 = 0 i.e. a = 75.111 1.619b

39

DDSs Tradeoffs
base amt. addnl. amt. 0.00 75.11 10.00 58.92 20.00 42.73 30.00 26.54 40.00 10.35 46.39 0.01
40

Makes Sense to Farmers?

DDSs operating equation: 204b + 126a = 9464
For farmers from the backward class to prefer DDS: 0.624uw (204b + 126a) 0.6uw 8400 i.e. uw 44333.33 What happens if uw < 44333.33?
41

Case when uw < 44333.33

Farmers from the backward class do not come to DDS any more!
DDSs operating equation: 204b + 126a = 9560 i.e. a = 75.873 1.619b Does it make sense to farmers not from the backward classes? 0.024 uw 9560 9360, i.e. uw 8333.33
42

Enter Geophysical Survey

Water found
Survey recommends digging 448

Water not found

112 560 240

Survey does not recommend digging

Results valid for digging up to 200ft only

43

Enter Geophysical Survey

Water found
Survey recommends digging 448 32 480

Water not found

112 208 320 560 240

Survey does not recommend digging

Results valid for digging up to 200ft only

44

Decision Tree After Survey

S

Drill with DDS go for survey

Drill with DDS no survey

Drill, but without DDS

Do not go for drilling

45

Decision Tree After Survey

Hit water at 200ft Recommend drilling Go up to 250ft Hit water at 250ft

No water at 200ft Do not Recommend drilling Abandon

No water at 250ft

46

Decision Tree After Survey

Farmers view:
Hit water at 200ft Prob: 0.8 Recommend drilling Prob: 0.7
S

EMV = Hit water uw 200(b+a) at 250ft Prob: 0.3 Go up to 250ft Prob: 0.2 Prob: 0.7 No water at 250ft Prob: 0.8 Abandon EMV = 200b

EMV = uw 250(b+a)

Prob: 0.2 No water at 200ft

Prob: 0.3 Do not Recommend drilling EMV = 0

EMV = 250b

Expected Monetary Value

uw: monetary value of well b : base rate that farmers pay 47 a : additional rate for successful farmers

From Farmers Point of View

Expected Monetary Value: 0.5684uw 141.4b 114.1a 490
Charge for the geophysical survey

48

Decision Tree After Survey

DDSs view:
Farmer from Non-Backward Class Hit water at 200ft Prob: 0.8 Recommend drilling Prob: 0.7
S

EMV = 200(b+a) Hit water 10000 at 250ft Prob: 0.3 Go up to 250ft Prob: 0.2 Prob: 0.7 No water at 250ft Prob: 0.8 Abandon

EMV = 250(b+a) + 1600 12500

Prob: 0.2 No water at 200ft

Prob: 0.3 Do not Recommend drilling EMV = 0

EMV = 250b + 1600 12500

EMV = 200b + 1600 10000

Expected Monetary Value

uw: monetary value of well b : base rate that farmers pay 49 a : additional rate for successful farmers

Decision Tree After Survey

DDSs view:
Farmer from Backward Class Hit water at 200ft Prob: 0.8 Recommend drilling Prob: 0.7
S

EMV = 200(b+a) Hit water 10000 at 250ft Prob: 0.3 Go up to 250ft Prob: 0.2 Prob: 0.7 No water at 250ft Prob: 0.8 Abandon

EMV = 250(b+a) + 4000 12500

Prob: 0.2 No water at 200ft

Prob: 0.3 Do not Recommend drilling EMV = 0

EMV = 250b + 4000 12500

EMV = 200b + 4000 10000

Expected Monetary Value

uw: monetary value of well b : base rate that farmers pay 50 a : additional rate for successful farmers

From DDSs Point of View

EMV from non-backward class: 141.4b + 114.1a 6846 EMV from backward class: 141.4b + 114.1a 6510 Expected EMV: 141.4b + 114.1a 6812.4 DDSs operating equation a = 59.71 1.24b
51

DDSs New Tradeoffs

base amt. addnl. amt. 0.00 59.71 10.00 47.31 20.00 34.91 30.00 22.51 40.00 10.11 46.39 2.18
52

Makes Sense to Farmers?

Again concentrate of farmers from backward classes. (Why?) Digging without DDSs help: EMV = 0.6uw 8400 Digging with DDSs help and survey: EMV = 0.5684uw 141.4b 114.1a 490 DDSs operating principle: 141.4b + 114.1a = 6812.4 Does it make sense? Only when uw 34734.12
53

Effect of Geophysical Survey

Successful
Base amt. 0.00 10.00 20.00 30.00 40.00

Unsuccessful Before
0.00 2000.00 4000.00

Before
15022.20 13784.20 12546.20

After
12432.00 11952.00 11472.00

After
490.00 2490.00 4490.00

11308.20
10070.20

10992.00
10512.00

6000.00
8000.00

6490.00
8490.00

Drilling up to 200ft

54

Effect of Geophysical Survey

Successful
Base amt. 0.00 10.00 20.00 30.00 40.00 Before 18777.75 17230.25 15682.75 After 15417.50 14817.50 14217.50

Unsuccessful
Before 0.00 2500.00 5000.00

After
490.00 2990.00 5490.00

14135.25
12587.75

13617.50

7500.00

7990.00

13017.50 10000.00 10490.00

Drilling up to 250ft

55