Impact of Risk and Time Preferences on Responses to Forest Tenure Land Reform: Empirical Evidence from Fujian, China

Abstract

This research examines the effect of risk and time preferences on forest management responses to forest tenure land reforms in Fujian, China that began in 2002. The different extent of the reform and its different timing across regions provide a natural experiment to test how time and risk preferences affect a households’ forest investment response to the reform. Empirically, we combine original field experiment data on time and risk preferences collected among 103 households with an original panel survey data set collected among the same 103 households, which contains data for three years: 2000 (before the reform), 2005 and 2008 (after the reform) in a difference-in-differences framework. We examine three measures of forest management activity, including: the value of labor allocated to applying forest inputs, the expenditure on forest inputs, and the value of labor allocated to harvesting. The status of the forest tenure reform on each forest plot is captured by an indicator variable of whether or not the household has a forest certificate for the plot. Results indicate that forest plot certification has not had the expected impact of increasing investment in forest resources, in terms of labor to apply and expenditure on forest inputs (chemical fertilizer, pesticide and seed). However, forest plot certification has had the expected impact on harvesting behavior, as less harvesting labor was allocated to plots with forest certificates. Furthermore, results indicate that risk aversion, as well as a household’s liquidity constraint, have an impact on forest management responses to forest certification. The results of this paper have wide implications to policymakers in China and elsewhere by informing when property right reforms may not work as intended. The results indicate that instruments to deal with risks and poverty need to be coupled with such reforms in order to increase investment in long-term, productivity enhancing forest activities.