Nudging Sustainable Farming: Experimental Evidence on the Role of Budget Constraints and Agricultural Subsidy Formats

Reducing environmental damage from agricultural systems is a critical priority for governments. Particularly, rice farmers in developing nations frequently resort to the environmentally harmful practice of post-harvest residue burning. Promotion of practices to mitigate burning is met with differing degrees of success. Through experimental research with farmers in Thailand, this study examines the impact of temporary cost and income subsidies on the reduction of burning by farmers with differing financial attributes. Financial characteristics were modelled by imposing budget constraints on participants through varying initial endowments. The findings indicated that temporary subsidies were effective in not only the short-term during provision but also in the longterm after subsidies ended. Additionally, several psychological impacts contributing to disparities in adoption rates were identified, including the perceived need for obtaining more income among budget-constrained individuals and the noteworthy impact of loss aversion on long-term adoption decisions. The study’s insights offer valuable contributions to understanding smallholder farmers’ behaviours in accepting temporary subsidies for sustainable agriculture and provides policymakers with practical strategies to alleviate the harmful consequences of conventional farming practices.