Climate change beliefs and subsidy for adaptation: Evidence from cocoa farmers in Ghana
This study compares the effectiveness of a standard payment-for-ecosystem-services (PES) subsidy and an output-based subsidy in incentivising smallholder farmers' adaptation to climate change and explores the role of individual beliefs using a lab-in-the-field experiment in Ghana's cocoa industry.
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Shu and Zhang Policy Brief September 2024.pdf
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- This study uses a lab-in-the-field experiment with cocoa farmers in Ghana to compare the effects of two subsidies for shade tree planting. It also examines the role of information campaigns combined with the two subsidies in shaping individual beliefs. Shade management, planting more forest trees for shade over cocoa trees, affects production and environmental outcomes.
- The study compares the Input subsidy for forest shade trees and the Output subsidy for cocoa beans from shaded farms in a lab game. Both subsidies increase forest tree planting and income sizably. The Output subsidy increases 7.6 trees per acre, compared with 8.4 under the Input subsidy, which is driven by farmers' prior beliefs of climate risk and optimal shade level.
- Interacting two subsidies with an information intervention on climate risks and shade benefits, the lab game results show information is more effective under the Output subsidy by shifting beliefs about optimal shade. Farmers’ requests and pick-up of forest tree seedlings during the Green Ghana Program corroborate the lab game findings.
- This study highlights the critical role of farmers’ heterogeneous beliefs in the effectiveness of subsidy policies. Agro-environmental policies should consider individual belief heterogeneity and better use of the deployed targeted information campaigns, especially in localised enforcement periods.