An Analysis of Farmers' Incentives to Conserve or Degrade the Land

Abstract

In this paper, it is argued that an increased understanding of the linkages between farmers' economic incentives to control soil degradation, degradation-induced productivity decline and future farmland productivity is essential for the formulation of effective land degradation and soil management policies. As a basis for the argument, a comprehensive farm-level economic model for the optimum private and social utilization of soil over time is developed. Complexities in the decision process due to environmental conditions and other uncertainties are considered. It is shown that, if farmers are well informed, they will tolerate soil degradation only to the point where the marginal net returns from depleting soil depth, fertility or structure equal the marginal profits foregone from conserving these productive aspects of the soil. Efficiency-related technical progress is found to provide incentives for reduced rates of soil degradation. It is also found that the optimum private rate of soil degradation is not likely to mimic the socially optimal rate unless capital markets and farm input and output markets operate efficiently and competitively. The potential for monetary and fiscal policy to impact on private rates of soil utilization is highlighted as a topic for further detailed investigation. Finally, it is argued that external costs and benefits from farming activity, which have not as yet been comprehensively quantified, may be single most important cause of any differential between the optimum private and social rates of soil degradation.