Description

This paper applies a stochastic dynamic model to examine the influence of poverty and consumption risk on the incentives for low-income farms to invest in soil conservation measures. Production data from hillside farms in the Philippines is used to calibrate the model. Based on the model results, the most significant factors impacting the viability of soil conservation practices include the investment cost, the risks associated with particular soil conservation techniques, and household capacity to bear risk. The collected data, summarized empirically by a probit model and nonparametric kernel regressions of adoption probability, reveal farm size, tenure security, risk exposure, and availability of credit are influential in determining trends of soil conservation practices. The author also discusses the policy implications of the study.