The finding that most smallholders were risk averse indicates that they may have
been unwilling to take risks or change their existing production systems, even if
credit opportunities existed. For example, risk aversion may have prevented
respondents from taking out a loan to invest in a new production system or from
buying a new input, for fear of not being able to repay the loan. The avoidance of
investments that may have increased households’ productive capacity, keeping
them trapped in poverty – pursuing low-risk, low-return income generating
strategies (Dercon 1996; Morduch 1994; Rosenzweig and Binswanger 1993;
Skees et al. 2006). Also, high levels of risk aversion may also steer the poor away
from investments in natural resources which they view as risky. For the poor to take
part in the conservation of natural resources, policies should focus on promoting
low-risk land use strategies, such as perennial crop production with a low risk of
crop failure (Scherr 2000).
5.3.5 Poverty and Discount Rates
11
The decision as to whether and how to use natural resources for agriculture and
forestry is, in essence, always intertemporal. Farmers decide how to use natural
resources based on their perceptions of these resources’ current and future availability, and given the impact of today’s actions (Holden et al. 1998). Poor farmers
who lack access to financial services and face insecurity can be expected to focus on
their present utility more than their future utility, inducing short-sighted behaviors
which may be detrimental to the environment (Holden and Binswanger 1998).
Here we test this hypothesis empirically by examining data collected in 2011 in
Yen Chau in relation to farmers’ discount rates. Discount rates provide information
on how much future consumption one is willing to forego for immediate consumption. Discounting can result from a preference for present consumption if present
consumption is currently low, from an impatience if consumption levels are constant (Olson and Bailey 1981 in Pender 1996), and from more widespread problems
such as high rates of inflation (Viscusi and Moore 1989) or lack of investment
opportunities (Pender 1996; Harrison et al. 2002). We used the MPL method to
determine the discount rate at which an individual was indifferent between two
payment options.
Respondents were presented with two alternatives: Option A which offered a
payout of 1 million VND after 1 month, and Option B which offered a payout of
1 million + x VND after 2 months. The set-up was similar to that of Coller and
Williams (1999), who used payouts after 1 month and 3 months. While the
equivalent of Option B in other studies has ranged from 1 day to 4 years (cf.,
Anderson and Gugerty 2009; Benzion et al. 1989), we chose a 2 month future
11 This section is based on Nielsen (in progress).
5 Linkages Between Agriculture, Poverty and Natural Resource Use. . .
191
been unwilling to take risks or change their existing production systems, even if
credit opportunities existed. For example, risk aversion may have prevented
respondents from taking out a loan to invest in a new production system or from
buying a new input, for fear of not being able to repay the loan. The avoidance of
investments that may have increased households’ productive capacity, keeping
them trapped in poverty – pursuing low-risk, low-return income generating
strategies (Dercon 1996; Morduch 1994; Rosenzweig and Binswanger 1993;
Skees et al. 2006). Also, high levels of risk aversion may also steer the poor away
from investments in natural resources which they view as risky. For the poor to take
part in the conservation of natural resources, policies should focus on promoting
low-risk land use strategies, such as perennial crop production with a low risk of
crop failure (Scherr 2000).
5.3.5 Poverty and Discount Rates
11
The decision as to whether and how to use natural resources for agriculture and
forestry is, in essence, always intertemporal. Farmers decide how to use natural
resources based on their perceptions of these resources’ current and future availability, and given the impact of today’s actions (Holden et al. 1998). Poor farmers
who lack access to financial services and face insecurity can be expected to focus on
their present utility more than their future utility, inducing short-sighted behaviors
which may be detrimental to the environment (Holden and Binswanger 1998).
Here we test this hypothesis empirically by examining data collected in 2011 in
Yen Chau in relation to farmers’ discount rates. Discount rates provide information
on how much future consumption one is willing to forego for immediate consumption. Discounting can result from a preference for present consumption if present
consumption is currently low, from an impatience if consumption levels are constant (Olson and Bailey 1981 in Pender 1996), and from more widespread problems
such as high rates of inflation (Viscusi and Moore 1989) or lack of investment
opportunities (Pender 1996; Harrison et al. 2002). We used the MPL method to
determine the discount rate at which an individual was indifferent between two
payment options.
Respondents were presented with two alternatives: Option A which offered a
payout of 1 million VND after 1 month, and Option B which offered a payout of
1 million + x VND after 2 months. The set-up was similar to that of Coller and
Williams (1999), who used payouts after 1 month and 3 months. While the
equivalent of Option B in other studies has ranged from 1 day to 4 years (cf.,
Anderson and Gugerty 2009; Benzion et al. 1989), we chose a 2 month future
11 This section is based on Nielsen (in progress).
5 Linkages Between Agriculture, Poverty and Natural Resource Use. . .
191