The Importance of Non-Pecuniary Factors and Heterogeneity of Farmers in Tillage Choices

by Avishek Konar

Institution: The Ohio State University
Department: Agricultural, Environmental and Developmental Economics
Degree: PhD
Year: 2015
Keywords: Agricultural Economics; Economics; Environmental Economics
Record ID: 2057915
Full text PDF: http://rave.ohiolink.edu/etdc/view?acc_num=osu1420719287


Phosphorus loadings from agricultural fields is of particular concern in freshwater systems because it causes eutrophication leading to algal blooms and hypoxia or anoxia, a state of low dissolved oxygen in water, causing deaths to aquatic animals and releasing various forms of phosphorus resulting in further eutrophication. Farmers' land management practices, including the timing, rate and placement of fertilizers, crop rotation and tillage choices have large impacts on the amount of nonpoint source pollution that is generated within a watershed. The environmental impacts from agricultural nonpoint source runoff have become a significant issue in Lake Erie due to phosphorus concentrations and subsequent large algal blooms. Thus it is extremely important for us to understand how farmers make best management practice decisions. This dissertation investigates the role of farmer decision making, particularly tillage choices, and investigates primarily the following factors: (a) farmers are motivated by factors other than profit, i.e. the role of non-pecuniary factors, (b) farmers are heterogeneous in their preferences, and (c) one important non-pecuniary factor that contributes towards heterogeneity of farmer choices is that of peer effects. This study consists of two separate investigations on the same data set. Following chapters 1, 2 and 3, in which I introduce the topic, provide a literature review and describe the data respectively, chapters 4 and 5 provide the analysis of a joint crop-farm management decision. In chapter 4, I investigate the heterogeneity of farmer preferences using a latent class model, and in chapter 5 I investigate the role of peer effects using a Brock and Durlauf (2002) framework. More specifically, in chapter 4, I investigate an aspect of farmer decision making, that has thus far not been considered in detail: the extent to which farmers may be heterogeneous not only in their attitudes towards risk and other classic economic determinants of choices, but also in their preferences for environmental quality and stewardship and how this affects their land management choices. Using survey data on farmers and their farm management practices from a northwest region of Ohio, I model the individual heterogeneity of farmers’ preferences for crop choice and farm management practices that influence environmental quality. The hypothesis is that heterogeneity among farmers in their environmental beliefs and preferences significantly influences farm management choices. The discrete choice model posits a joint crop-farm management decision in which farmers make a profit-maximizing decision regarding crop type and conditional on crop choice, choose the management practice that maximizes their utility. Unlike crop choice, which is hypothesized, to depend solely on expected profits, we contend that management choices are influenced not only by costs, but also by heterogeneous preferences for environmental quality. The heterogeneity of individuals is modeled using a latent class model, which posits a finite…