Land degradation, soil conservation and risk: Evidence from a dynamic model of Philippine upland agriculture

This dissertation investigates theoretical and empirical links between soil conservation and risk. On a theoretical level I demonstrate how price uncertainty and consumption risk reduce the incentives for investment in soil conserving crops and technologies. On an empirical level I show that investment patterns among poor upland farmers can be best explained by the consumption risks embodied in various soil conservation strategies, and the capacity of households to manage these risks. The risk characteristics of soil conservation strategies present a significant barrier to soil conservation investments for many upland households.; To test the hypothesis that investment behavior is conditioned on consumption risk and capacity to manage it, I examine the benefits and costs of soil conservation for producers at two upland sites in the Philippines. I use a series of econometric and stochastic dynamic programming models that incorporate risk to explain why some farmers at these sites show reluctance to invest in soil conservation, whilst others find it advantageous to invest. Compared with a model that assumes certainty and risk neutrality, models implemented under assumptions of uncertainty and risk aversion, especially downside-risk aversion, consistently generate patterns of resource allocation closer to those observed at the study sites.; The major analytical contribution of the study is a model of soil conservation investment that combines a sunk-cost investment decision under uncertainty with a dynamic portfolio allocation problem. The dissertation applies recent theoretical contributions from the general literature on investment under uncertainty to the issue of soil conservation in a low-income setting. Data from two 1994 farm surveys are used to estimate parametric and non-parametric econometric models of conservation adoption, as well as heteroskedastic yield functions for corn grown using traditional methods and contour hedgerows for soil conservation. The empirical findings in support of risk-conditioned investment behavior and crop choice have important policy implications for promotion of soil conservation in developing countries, as well as implications for general equilibrium models that seek to predict the environmental impacts of economic change. The study concludes with a policy simulation of partial market liberalization and its likely impact on rates of upland erosion.