Speaker : Dr. Avishek Konar (Ohio State University)
Abstract: Current research on farmers’ decision making processes focuses on pecuniary variables like profitability of adopted practices while ignoring farmer heterogeneity and the role of non-pecuniary factors, like peer effects. This paper contends that there is an underlying farmer preference structure which is influenced by neighbourhood level variables and peer effects. Using data collected via mail survey from the Maumee watershed counties in Ohio, this paper finds a strong impact of peer effects using a Brock and Durlauf (2002) framework. The presence of heterogeneity of farmer decision making is tested by employing latent class analysis which indicates that there are two different classes of farmers. Peer effects determine the class to which a farmer belongs, and contingent on class membership farmers make tillage choices. Farmers in class one are more responsive to choices made by their peers and are more likely to use reduced tillage practices that involve less disruption of the soil, while farmers in class two are less responsive to choices made by their peers and more likely to use conventional tillage practices. Besides the general relevance of better understanding of farmer decision making process on how it impinges on environmental outcomes, this paper points to two specific implications which are of great interest to policymakers. Firstly, the results indicate the possibility of a “multiplier effect” on changes in farmer choices driven by peer effects—a result vindicated by a simple simulation exercise. Secondly, the heterogeneity of farmer preference structure, in particularly their responsiveness to what their peer farmers do, suggest that policymakers can exploit non-pecuniary mechanisms—in conjunction with pecuniary factors—and complement “hard” policies, those that change the profitability of land management practices by associating financial incentives or penalties with particular practices, with “soft” policies, such as education and awareness programs.