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Market-based instruments for risk-averse farmers: rubber agroforest conservation in Jambi Province, Indonesia

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  • Djanibekov, Utkur
  • Villamor, Grace B.

Abstract

This paper investigates the effectiveness of different market-based instruments (MBIs), such as eco-certification premiums, carbon payments, Pigovian taxes and their combination, to address the conversion of agroforests to monoculture systems and subsequent effects on incomes of risk-averse farmers under income uncertainty in Indonesia. For these, the authors develop a farm-level dynamic mean-variance model combined with a real options approach. Findings show that the conservation of agroforest is responsive to the risk-aversion level of farmers: the greater the level of risk aversion, the greater is the conserved area of agroforest. However, for all risk-averse farmers, additional incentives in the form of MBIs are still needed to prevent conversion of agroforest over the years, and only the combination of MBIs can achieve this target. Implementing fixed MBIs also contributes to stabilizing farmers’ incomes and reducing income risks. Consequently, the combined MBIs increase incomes and reduce income inequality between hardly and extremely risk-averse farmers.

Suggested Citation

  • Djanibekov, Utkur & Villamor, Grace B., 2017. "Market-based instruments for risk-averse farmers: rubber agroforest conservation in Jambi Province, Indonesia," Environment and Development Economics, Cambridge University Press, vol. 22(2), pages 133-155, April.
    • Handle: RePEc:cup:endeec:v:22:y:2017:i:02:p:133-155_00
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    Cited by:

    1. Xueting Zeng & Liang Cui & Qian Tan & Zhong Li & Guohe Huang, 2018. "A Sustainable Land Utilization Pattern for Confirming Integrity of Economic and Ecological Objectives under Uncertainties," Sustainability, MDPI, vol. 10(5), pages 1-18, April.
    2. Wening Sarwosri, Arieska & Wegmann, Johannes & Mußhoff, Oliver, 2018. "Encouraging rainforest preservation by smallholders: An ex-ante policy evaluation," EFForTS Discussion Paper Series 23, University of Goettingen, Collaborative Research Centre 990 "EFForTS, Ecological and Socioeconomic Functions of Tropical Lowland Rainforest Transformation Systems (Sumatra, Indonesia)".
    3. Fonseca Morello, Thiago, 2022. "Subsidization of mechanized tillage as an alternative to fire-based land preparation by smallholders: An economic appraisal of the case of southwestern Brazilian Amazon," Land Use Policy, Elsevier, vol. 123(C).
    4. Wollni, M. & Lanza, G. & Ibanez, M., 2018. "Social capital and conservation under collective and individual incentive schemes: a framed field experiment in Indonesia," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 275968, International Association of Agricultural Economists.
    5. Djanibekov, Utkur & Gaur, Varun, 2018. "Nexus of energy use, agricultural production, employment and incomes among rural households in Uttar Pradesh, India," Energy Policy, Elsevier, vol. 113(C), pages 439-453.
    6. Hermann, Daniel & Sauthoff, Saramena & Mußhoff, Oliver, 2017. "Ex-ante evaluation of policy measures to enhance carbon sequestration in agricultural soils," Ecological Economics, Elsevier, vol. 140(C), pages 241-250.

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