Optimal soil depletion with output and price uncertainty

Sverre Grepperud

Environment and Development Economics, 2000, vol. 5, issue 03, pages 221-240

Abstract: This paper studies soil depletion incentives in a dynamic economic model under two different sources of revenue uncertainty (output and price risk). The focus is on the long-term effects of risk-averse preferences when farming decisions have implications for both expected short-run production and natural topsoil fertility. The analysis shows that the risk properties of the stock variable are crucial for the results arrived. The presence of risk preferences is found to improve soil conservation incentives in a low-input farming system, independent of the source of revenue risk considered. The only case for which soil conservation incentives are weakened is for high-input farming systems under price uncertainty.JEL classification: Q12, Q20, D81

Date: 2000

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