Relative poverty and decision-making: Investigating the impact of incentivised conservation programmes on poverty in Madagascar.

Lead Research Organisation: University of Reading
Department Name: Economics

Abstract

This project aims at offering a low-cost, high-impact action lever on poverty alleviation for policy makers that could further be extended to other types of interventions supporting sustainable growth in poor countries.
The use of economic incentives to sustain biodiversity and alleviate poverty has been increasing since the late 1990s in many international arenas. With the emergence of the Ecosystem Services concept as set out in the Millennium Ecosystem Assessment, economic incentives have become an important innovative policy instrument for biodiversity conservation worldwide (Hanley et al, 2012), which also appears to be a potential tool for poverty alleviation and a new channel to foster foreign development aid.

This project focuses on how relative poverty affects decision-making in developing countries, where conservation programmes are used to encourage behaviour change amongst farmers. Recent evidence suggests that the psychological impact of being poor exacerbates a poverty trap mechanism. People living in developing countries' rural area are exposed to stress that affects the way they make decisions over time. It increases their discount rate (Tanaka et al, 2010) and their propensity to behave in a manner consistent with hyperbolic discounting, that is, overweighting immediate outcomes (Ashraf et al, 2006; Clot and Stanton, 2014). This prevents them from making choices consistent with improving their prospects for long-term sustained improvements in well-being (Haushofer and Fehr, 2014). In parallel to the effect of absolute poverty, additional findings demonstrate the aggravating role of relative poverty (unbalanced cash flows over a calendar year) on individuals' preferences (Haushofer et al, 2013; Carvalho et al, 2016). Participating in a conservation scheme can change farmers' cash flows over a year. Participation could also impact farmers' individual preferences by changing their level of relative poverty. The following question thus arises: Could payment (re-)scheduling help poor farmers to escape poverty traps? We propose to test two main hypotheses: 1) Relative poverty impacts farmers' risk, time and social preferences; 2) Rewards (such as those offered to promote alternative activities) are more likely to translate into stress-biased decisions, worsening farmer's prospects for long-term sustained improvements in well-being, when occurring in a context of relatively higher poverty.

A choice experiment (CE) will be implemented to test the impact on individuals' choices of financial rewards in two extreme conditions of relative poverty: before and after harvest (Mani et al, 2013). CE are particularly useful when no observed data is available, to test alternative policy scenarios (Hanley and Barbier, 2009), and have been used increasingly to study the determinants of farmers' willingness to enter into conservation contracts (Kuhfuss et al, 2016). CEs offer flexibility in evaluating complex trade-offs between goods with multiple attributes in a reduced number of questions. In this research, goods will take the form of indicators informing about risk, social and time preferences. In addition, two versions of the CE will be tested (contextualised and context-free). Altogether, this will lead to advances in mastering evaluation methods in the field.

While various dimensions of conservation contracts have been investigated, the importance of timing has been emphasised only recently (Clot and Stanton, 2014). This project also reflects an emerging literature on poverty and decision making (Mani et al, 2013). Madagascar is one of the world's poorest countries and hosts a wide range of ecosystem services, making it especially attractive for conservation programmes. Results from this project will provide valuable information for NGOs implementing conservation schemes but also for future research dealing with incentive-based approaches, as well as researchers interested in novel methods for social sciences.

Planned Impact

Climate change impacts countries and individuals across the world (through droughts, floods, more intense and frequent natural disasters, and sea-level rise). The poorest and most vulnerable are being hit the hardest. It forces some 26 million people into poverty each year, and the impact of natural disasters is estimated to a total of $520 billion loss in annual consumption (Worldbank, 2018).

The sustainability of conservation programmes designed to fight climate change and facilitate the transition to a low carbon, resilient and sustainable global economy is critical to limit those negative outcomes.

The aim of the proposed project is to provide research outputs that directly inform the development of sustainable policies to foster adaptation to climate change via environmental conservation. The most important impact of this research is in improving the efficiency of such environmental programmes on poverty alleviation and environmental conservation, tackling the immediate negative outcomes associated to climate change but also ensuring climate change mitigation over the long run.
Research has started to investigate the impact of conservation programmes on environment and poverty in recent years. In its early stages, the literature has been prominently advocating the high potential for environmental conservation programmes, consisting in offering rewards to compensate farmers for engaging in conservation activities (and/or limiting land's overexploitation), because of their ability to tackle two issues at once, namely poverty and climate change. The initial enthusiasm associated to such win-win conservation approach has recently given way to a more critical view. Outcomes are often below target and additional empirical data suggest that farmers do not necessarily engage in those programme even when financial incentive largely cover their loss. It is now widely accepted that further insights about how to maximise impact is required. More specifically, very little is known about how human behaviour interacts with those issues and how to best incentivise people for sustainable change. By providing insights into the understanding of some non-trivial behavioural aspects of programme implementation, the research has clear potential to impact a range of beneficiaries.

The project has the capacity to benefit:

1. Poor people living in developing countries' rural area. The research could impact the quality of life of the poorest individuals, by optimising the schedule of incentives delivery to minimise stress-biased decisions. Further, by mitigating conservation issues, it would also ensure a more sustainable future in those rural areas.

2. IOs and Think Tanks involved in development programme. This research will provide new ideas about ways of approaching the design of incentives for poor people who have to adapt to new situations. This is not limited to Madagascar, nor conservation programmes, but extends to any development programme involving poor people in rural areas.

3. Researcher working with developing countries in general. The impact of relative poverty on decision-making could have a wide range of application, even beyond conservation programmes. The methodological aspects of the research will open new direction to study behaviour in the field. It will facilitate data collection and impact the behavioural understanding of most marginalised individuals, leaving in developing countries rural areas.

Publications

10 25 50
 
Title A choice experiment to elicit individual behaviour (risk/time/social) 
Description The incentivised Choice Experiment (CE) designed in this project aims at eliciting via a simplified protocol individual characteristics such as risk, time and social preferences. A final version has been produced thanks to two pilot studies. Survey data has been collected to corroborate the Choice Experiment results. Data has been collected amongst about 500 individuals, at the pick of the hunger season. Data entry is on going. A second data collection phase is planned after the end of the hunger season to assess the impact of relative poverty on decision making. 
Type Of Material Data analysis technique 
Year Produced 2021 
Provided To Others? No  
Impact The research project is still at a too early stage to report impact.