Testing participation constraints in contract design for sustainable soil conservation in Ethiopia

This paper focuses on contract design to improve the incentive structure of current coordination mechanisms related to sustainable land use management in the Ethiopian highlands. The main objective is to assess whether, and if so under which terms and conditions, rural households are willing to enter into contractual agreements to invest in soil conservation measures on their land. Participation constraints are tested under different soil erosion and institutional-economic conditions in a choice experiment targeting 750 rural households. We show that contracts provided by local government peasant associations offering additional credit, land use security and extension services could be an effective means to increase the share of farmers implementing soil conservation measures. However, trust in contract terms and conditions appears to play an important role. Farmers living in the most erosion prone areas are most likely to participate, while farmers taking soil conservation measures already are less likely to enter into a contractual agreement with the local government. Farmers not taking soil conservation measures will only do so if the contract price is lower than or equal to the income losses suffered from soil erosion.