Poverty, consumption risk, and soil conservation

This paper studies the impact of poverty and uninsured consumption risk on incentives to invest in soil conservation. A stochastic dynamic model is us ed to show how consumption risks and costs of investment influence incentiv es to adopt soil conservation measures on low-income farms. The model is ca librated using production data from hillside farms in the Philippines. Simu lations with the model demonstrate how the value of soil conservation depen ds on the cost of investing, the risk characteristics of the soil conservat ion method and differences among households in capacity to bear risk. Model predictions are compared with empirical adoption patterns, as described by a probit model and nonparametric kernel regressions of adoption probabilit y. Empirical findings show how differences in farm size, tenure security, r isk exposure, and access to credit help to explain patterns of soil conserv ation adoption. Implications for policy are discussed. (C) 2001 Elsevier Sc ience B.V. All rights reserved.