Promoting agricultural technologies with positive environmental effects: Evidence on tree planting in Indonesia

In the presence of market inefficiencies and missing information, agricultural technologies have often been introduced via subsidies to accelerate diffusion and spur adoption. Yet, for agricultural technologies that mainly generate positive environmental effects, it is not clear how subsidies affect adoption, maintenance, and additional investments. This study introduces native tree seedlings through two different distribution mechanisms to foster tree planting in an oil palm hotspot in Indonesia. In treatment one, oil palm farmers receive information about native tree planting and three different native tree seedlings for free (subsidy treatment). In treatment two, oil palm farmers receive the same information and the opportunity to buy three different native tree seedlings through an auction (price treatment). The results show that conditional on receiving the seedlings the uptake of the technology is similar between the two treatments, suggesting that there is no strong selection effect in the price treatment. For the full sample, the subsidy treatment is associated with higher tree planting activities. The farmers in the subsidy treatment apply less maintenance to their trees, but the number of surviving trees is still higher than in the price treatment. Finally, the subsidy treatment tends to be associated with lower additional planting efforts.