Market-based instruments for risk-averse farmers: rubber agroforest conservation in Jambi Province, Indonesia

Abstract

ABSTRACT. This paper investigates the effectiveness of different market-based instruments (MBIs), such as eco-certification premiums, carbon payments, Pigovian taxes and their combination, to address the conversion of agroforests to monoculture systems and subsequent effects on incomes of risk-averse farmers under income uncertainty in Indonesia. For these, the authors develop a farm-level dynamic mean-variance model combined with a real options approach. Findings show that the conservation of agroforest is responsive to the risk-aversion level of farmers: the greater the level of risk aversion, the greater is the conserved area of agroforest. However, for all risk-averse farmers, additional incentives in the form of MBIs are still needed to prevent conversion of agroforest over the years, and only the combination of MBIs can achieve this target. Implementing fixed MBIs also contributes to stabilizing farmers' incomes and reducing income risks. Consequently, the combined MBIs increase incomes and reduce income inequality between hardly and extremely risk-averse farmers.

A coupled human–natural system to assess the operational value of weather and climate services for agriculture

“…In this work, we explore three different levels of farmers' risk aversion creating a spectrum of behavioural attitudes, namely risk averse, risk neutral, or risk prone (e.g. Rogers, 1975;Mosley and Verschoor, 2005;Koundouri et al, 2006;Djanibekov and Villamor, 2017). A risk-averse, pessimistic behaviour (or a low level of trust in the forecast products) implies that agents decide on the basis of the worst-case realization, which means they will select the cropping patterns able to ensure the highest profit in the most adverse conditions.…”

Market-based instruments for ecosystem services: framework and case study in Lishui City, China

“…Different classifications have been proposed (Stuart Whitten et al 2003;Pirard,Lapeyre 2014;Gao et al 2019). Concepts, models, classifications, different applications of MBIs, and specific tools for correcting market failures have been the target of extensive discussion (Kemkes et al 2010;Pirard 2012;Lockie 2013;Gómez-Baggethun,Muradian 2015;Djanibekov,Villamor 2017). However, there is a disassociation between the theory and the practices of the existing research, and the pilot cases do not concur with the proposed theoretical model.…”

Stochastic-dynamic modelling of farm-level investments under uncertainty

“…Finding that value provides the information how likely the set-up at certain time points can be. These viewpoints motivate the application of the real options approach to different types of land and natural resources management problems (Alonso-Ayuso et al, 2014;Djanibekov and Villamor, 2017;Feng and Ryan, 2013;Sagastizábal, 2012;Simoglou et al, 2014;Tee et al, 2014;van Ackooij and Sagastizábal, 2014). Furthermore, large management projects are usually characterized with (1) competition among multiple activities for (quasi-)fixed resources 2 , e.g., limited labor and machinery capacity;…”