High discount rates may indicate that option to take out loans at low interest rates
were not available on a large scale and/or that alternative investment opportunities
were not considered when respondents were completing the questionnaire.
13 High
actual or expected rates of inflation – approximately 18.7 % on average in rural
areas in 2011 (General Statistics Office 2011), also partly explain the high discount
rates. As stated by Coller and Williams (1999), the high discount rates observed
may be partly explained by the methodology employed, in particular, the use of
hypothetical questions.
The high discount rates observed in Yen Chau indicate that farmers generally
have a high preference for current over future consumption; moreover, smallholders
with high discount rates may be unwilling to forego short-term economic returns for
greater long-term stability by, for example, investing in vegetation strips or other
soil conservation techniques which may result in having to forego income in the
short-term. The finding that higher discount rates are associated with lower risk
aversion may have interesting implications for natural resource management. How
discount rates and risk preferences interact and affect the adoption of natural
resource management regimes depends on short-term economic gains, as well as
how the decision-maker views the risk associated with adopting the technology. For
example, respondents adopting a cover crop were significantly more risk averse,
while those using agroforestry were significantly less so, and those using a vegetative strip experienced significantly lower discount rates than those who did not
adopt these respective technologies.
5.4 Poverty and Natural Resource Maintenance
The previous section showed that even in an area as small as Yen Chau district in
northern Vietnam, the socio-economic conditions faced by smallholder farmers are
very heterogeneous. Access to financial resources and to natural capital, farmers’
attitudes towards risk and their capacity to cope with economic shocks vary with
their wealth levels. Although no association between individual discount rates and
farmers’ wealth was found, our results show that farmers in the area experience
particularly high discount rates given the comparatively low interest rates observed
in the area. The poor were found to be more vulnerable to shocks and also more risk
averse, presumably because of their lower level of access to financial services,
infrastructure and natural capital, as well as social self-help networks. All of these
factors are likely to influence how farmers use natural resources – in particular, their
13 Credit markets or other investment opportunities represent an opportunity cost in relation to
choosing Option B (Coller and Williams 1999); for example, if a respondent has an individual
discount rate of 50 % and can borrow in the field at a rate of 10 %, then when the implied discount
rate in the experiment is between 10 % and 50 %, the respondent will gain an advantage if
borrowing in the field at 10 %, waiting the extra month for the payout under Option B, and then
repaying the debt from the payout in the experiment.
194
C. Saint-Macary et al.
were not available on a large scale and/or that alternative investment opportunities
were not considered when respondents were completing the questionnaire.
13 High
actual or expected rates of inflation – approximately 18.7 % on average in rural
areas in 2011 (General Statistics Office 2011), also partly explain the high discount
rates. As stated by Coller and Williams (1999), the high discount rates observed
may be partly explained by the methodology employed, in particular, the use of
hypothetical questions.
The high discount rates observed in Yen Chau indicate that farmers generally
have a high preference for current over future consumption; moreover, smallholders
with high discount rates may be unwilling to forego short-term economic returns for
greater long-term stability by, for example, investing in vegetation strips or other
soil conservation techniques which may result in having to forego income in the
short-term. The finding that higher discount rates are associated with lower risk
aversion may have interesting implications for natural resource management. How
discount rates and risk preferences interact and affect the adoption of natural
resource management regimes depends on short-term economic gains, as well as
how the decision-maker views the risk associated with adopting the technology. For
example, respondents adopting a cover crop were significantly more risk averse,
while those using agroforestry were significantly less so, and those using a vegetative strip experienced significantly lower discount rates than those who did not
adopt these respective technologies.
5.4 Poverty and Natural Resource Maintenance
The previous section showed that even in an area as small as Yen Chau district in
northern Vietnam, the socio-economic conditions faced by smallholder farmers are
very heterogeneous. Access to financial resources and to natural capital, farmers’
attitudes towards risk and their capacity to cope with economic shocks vary with
their wealth levels. Although no association between individual discount rates and
farmers’ wealth was found, our results show that farmers in the area experience
particularly high discount rates given the comparatively low interest rates observed
in the area. The poor were found to be more vulnerable to shocks and also more risk
averse, presumably because of their lower level of access to financial services,
infrastructure and natural capital, as well as social self-help networks. All of these
factors are likely to influence how farmers use natural resources – in particular, their
13 Credit markets or other investment opportunities represent an opportunity cost in relation to
choosing Option B (Coller and Williams 1999); for example, if a respondent has an individual
discount rate of 50 % and can borrow in the field at a rate of 10 %, then when the implied discount
rate in the experiment is between 10 % and 50 %, the respondent will gain an advantage if
borrowing in the field at 10 %, waiting the extra month for the payout under Option B, and then
repaying the debt from the payout in the experiment.
194
C. Saint-Macary et al.