The Role of Risk, Ambiguity, and Time Preferences in Farmers Decision Making to Participate in Agroforestry Payments for Environmental Services (PES) Programs in Developing Countries
Final Report Abstract
Uganda has recently experienced widespread forest loss and degradation, mainly driven by increased demand for forest products and agricultural expansion. Current conservative estimates suggest a 2% deforestation for private lands and 1% for protected areas annually. Some studies have indicated a higher rate (3.3%) due to agriculture in certain sites. One of the predominating forest landscape restoration strategies is the adoption of agroforestry practices in key agricultural landscapes in Uganda. While the benefits of agroforestry have been widely acknowledged, adoption among smallholder farmers is slow. An assessment of what particular features of agroforestry systems hamper or facilitate adoption requires a better understanding of farmers’ preferences. The objective of this research project were (1) to elicit both risk and time preferences of smallholder coffee farmers in the Mt. Elgon landscape of Uganda, a priority area for forest landscape restoration, by using lottery-based experiments, and (2) to investigate key attributes or features of companion trees in coffee agroforestry systems that are preferred by farmers using a discrete choice experiment. Farmers’ preferences related to six companion tree attributes were investigated: tree products provided, regulating ecosystem services provided, growth rate, seedling price, provision of quality shade for coffee, and maximum tree height. To demonstrate the relation between risk and time preferences and the adoption of companion trees, these experimental data were coupled with the results from the discrete choice experiment about farmers’ preferences for companion tree attributes. To analyze potential strata in farmer preferences, the sample included coffee farmers from different altitude zones. A gendered research design furthermore allowed exploring possible differences in preferences between men and women. The theoretical basis of the analysis was a random utility model to analyze the preferences of coffee farmers for various characteristics of companion trees. Cumulative prospect theory and quasi-hyperbolic discounting were used to measure farmers’ risk and time preferences. A maximum likelihood approach was then applied to estimate the effects of risk aversion, loss aversion, and time preference on choice probabilities of hypothetical companion tree alternatives vis-à-vis the status quo. The results showed that there is a relation between behavioral preferences and the relative importance of companion tree characteristics. Specifically, farmers with higher levels of risk aversion have a greater preference for companion trees that are associated with improving soil fertility (i.e. producing mulch and controlling soil erosion) than farmers with lower levels of risk aversion. Farmers with higher levels of risk aversion also have strong preferences for fast growing, as well as particularly strong aversion to slow growing companion trees compared to farmers with lower levels of risk aversion. Further, farmers with higher levels of loss aversion have a greater preference for the companion tree attribute soil fertility than farmers with lower levels of loss aversion. Lastly, farmers with a strong preference for the present prefer fast growing companion trees. Farmers with lower preference for the present (hence higher levels of patience) showed interest in slower growing trees. The results also suggest that preferences for regulating ecosystem services provided by companion trees vary according to farm altitude. Specifically, high-altitude farmers have a stronger preference for soil fertility improvement through mulch and erosion control than low-altitude farmers. High-altitude farmers also attach relatively lower importance to microclimate regulation (i.e. temperature buffering and soil moisture conservation) and pests and diseases control (i.e. decreasing incidence of white coffee stem borer and coffee leaf rust) than moderate-altitude farmers. Surprisingly, the results showed that men and women do not have different preferences for tree products. However, women have greater preferences for soil fertility (i.e. mulch and erosion control) than men. These findings demonstrate that a better understanding of farmers’ preferences in terms of the features of companion trees that they like, and dislike is important to design context-specific agroforestry options that aim to increase adoption of trees on farms in a way that is in line with and responsive to farmers’ needs and preferences.
Publications
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(2018). Experimental insights on the investment behavior of small-scale coffee farmers in central Uganda under risk and uncertainty. Journal of Behavioral and Experimental Economics 75, 31–44
Ihli, Hanna Julia; Gassner, Anja & Musshoff, Oliver
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(2020). Accounting for the invisible value of trees on farms through valuation of ecosystem services. In L. Rusinamhodzi (Ed.), The Role of Ecosystem Services in Sustainable Food Systems (pp. 229–261), Academic Press
Chiputwa, Brian; Ihli, Hanna J.; Wainaina, Priscilla & Gassner, Anja
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(2020). Gambling and Scrambling: How much for Biodiversity on Farms? IKI Trees on Farms for Biodiversity Project. Word Agroforestry (ICRAF), Nairobi, Kenya
Ihli, H. J.
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(2020). Protocol of implementing behavioral experiments for trees on farms options in Uganda: A discrete choice experiment. Word Agroforestry (ICRAF), Nairobi, Kenya
Ihli, H. J., Winter, E., and Gassner, A.
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(2020). Protocol of implementing behavioral experiments for trees on farms options in Uganda: Experiment on risk preferences. Word Agroforestry (ICRAF), Nairobi, Kenya
Ihli, H. J., Winter, E., and Gassner, A.
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(2020). Protocol of implementing behavioral experiments for trees on farms options in Uganda: Experiment on time preferences. Word Agroforestry (ICRAF), Nairobi, Kenya
Ihli, H. J., Winter, E., and Gassner, A.
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(2020). Using field experiments to quantify risk and time preferences of Ugandan coffee farmers in participating in forest landscape restoration. Working Paper, Word Agroforestry (ICRAF), Nairobi, Kenya
Ihli, H. J., Winter, E., and Gassner, A.
