A Risk Averse Farmer's Soil Conservation Responses to Changes in Wealth and Risk

This paper studies the production and soil depletion choices of a risk averse farmer. The study applies a one period, two date model with uncertainty in both production and end-of-period land price. The farmer makes production, and soil depletion choices at date 1 to maximise the expected utility of an increasing, concave, and additively separable Von Neumann-Morgenstern utility function. Comparative static results are signed to investigate how the production and soil depletion choices change with different levels of initial farmer wealth and production and land risk. The paper shows that, given some plausible conditions, a higher level of initial farmer wealth and/or a lower level of production and land risk will not necessary lead to a lower level of output and a lower level of output-induced soil depletion, as previous studies have found. This means that policy changes which increase farmer wealth and/or reduce risk can lead to an increase in soil degradation.