Risk, Risk Aversion, and On-Farm Soil Depletion

This paper studies the production and attendant soil depletion choices of a risk-averse farmer in two related models. The first is a two-date model with uncertainty in both production and end-of-period land price. The second is a three-date model in which production and consumption choices are made in both periods, but there is uncertainty only in the second period. In both models, the paper identifies plausible conditions under which a higher level of initial farmer wealth and/or a lower level of production and land risk lead to a lower level of output and, as a result, a lower level of output-induced soil depletion.