Ecological Economics 73 (2012) 168–178

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Ecological Economics
journal homepage: www.elsevier.com/locate/ecolecon

Analysis

Testing participation constraints in contract design for sustainable soil

conservation in Ethiopia
Abonesh Tesfaye, Roy Brouwer ⁎
Department of Environmental Economics, Institute for Environmental Studies, VU University, Amsterdam, De Boelelaan 1087, 1081 HV, Amsterdam, The Netherlands

a r t i c l e i n f o a b s t r a c t

Article history: This paper focuses on contract design to improve the incentive structure of current coordination mechanisms
Received 3 January 2011 related to sustainable land use management in the Ethiopian highlands. The main objective is to assess
Received in revised form 27 August 2011 whether, and if so under which terms and conditions, rural households are willing to enter into contractual
Accepted 17 October 2011
agreements to invest in soil conservation measures on their land. Participation constraints are tested under
Available online 25 November 2011
different soil erosion and institutional-economic conditions in a choice experiment targeting 750 rural
Keywords:
households. We show that contracts provided by local government peasant associations offering additional
Contract design credit, land use security and extension services could be an effective means to increase the share of farmers
Choice experiment implementing soil conservation measures. However, trust in contract terms and conditions appears to play
Participation constraints an important role. Farmers living in the most erosion prone areas are most likely to participate, while farmers
Soil conservation 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.
© 2011 Elsevier B.V. All rights reserved.

1. Introduction of the proposed government and non-governmental programs. Previ-

Land and soils in the Ethiopian highlands are among the most de-
graded natural resources in East Africa (e.g. El-Swaify and Hurni,
1996; Sonneveld, 2002). The annual soil erosion rate in the Ethiopian
highlands is estimated at about 1.5 billion metric tons (Taddese,
2001). A large share of this top soil is washed away into the Blue
Nile. The degradation is caused by human pressures such as increas-
ing populations, deforestation and unsustainable agricultural land
use practices (e.g. overgrazing), coupled with pressures like climate
change (e.g. higher intensity of rainfall). Recognizing that land degra-
dation due to soil erosion is a major environmental and socio-
economic problem, the Government of Ethiopia and Development
Agencies have supported several efforts over the past decades to pro-
mote soil conservation and environmental rehabilitation.
There is growing consensus though that many of these soil conser-
vation programs in the past were disappointing and ineffective for
various reasons. They used a flawed ‘environmental narrative’ to pro-
mote large scale top-down interventions, gave inadequate consider-
ation to farmers' perspectives, constraints, and local conditions,
provided limited options to farmers, and in some cases even promot-
ed unprofitable alternatives (e.g. Bekele, 2004; Shiferaw and Holden,
1998 and 1999). Most importantly perhaps is that none of these pre-
vious attempts paid adequate attention to the incentive-compatibility
⁎ Corresponding author. Tel.: + 31 20 5985608; fax: + 31 20 5989553.
E-mail address: roy.brouwer@ivm.vu.nl (R. Brouwer).
ous studies conducted in Ethiopia confirm that the absence of incen-
tives discourages farmers to adopt sustainable soil and water
conservation measures and even leads sometimes to the removal of
existing measures. Studies by Shiferaw and Holden (1998), Osman
and Sauerborn (2001), Admassie (2000), Taddese (2001), Abera
(2003), Gebremedhin and Swinton (2003), Ayalneh et al. (2006)
and Holden et al. (2009) in different parts of the country indicate
that tenure insecurity related to fears of further redistribution of
rural lands is the principal factor behind farmers' unwillingness to in-
vest in sustainable soil conservation measures. Shiferaw and Holden
(1998), Bekele and Drake (2003) and Anley et al. (2007) furthermore
find that the diffusion of information about available technological
options or rather the lack thereof has a significant effect on soil con-
servation investment decisions.
This paper focuses on contract design to improve the incentive
structure of the current coordination mechanism of sustainable land
use management in the Ethiopian highlands. The highlands are part
of the Blue Nile river basin and any intervention in current land use
management has a direct impact on the water services provided by
the river basin. Contracting is the most practical coordination mecha-
nism and not unknown in Africa as commercial contract farming has
been a successful income generating driving force for smallholder
farmers (e.g. Grosh, 1994). In the study presented here we use con-
tract theory (e.g. Bolton and Dewatripont, 2005) to address the
issue of asymmetric and incomplete information regarding the on-
site farmer costs of implementation of sustainable soil conservation
measures on the one hand and the costs of current unsustainable

0921-8009/$ – see front matter © 2011 Elsevier B.V. All rights reserved.
doi:10.1016/j.ecolecon.2011.10.017
 A. Tesfaye, R. Brouwer / Ecological Economics 73 (2012) 168–178
practices in terms of loss of crop yield and productive grazing land on
the other hand. The paper's main objective is to contribute to the de-
velopment of an incentive-compatible contract design based on the
identification of key institutional-economic conditions needed to be
in place for farmers to be willing to participate in such a contractual
agreement and invest in soil conservation measures. We estimate
rural farm household demand for contractual agreements under dif-
ferent soil erosion and institutional-economic conditions using a
choice experiment. More specifically in terms of Ferraro's (2008)
screening contracts, we test in the choice experiment whether partic-
ipation constraints are satisfied. Since no a priori knowledge and in-
formation exist about farmer types and possible informational rents,
incentive compatibility constraints cannot be tested. However, the
choice experiment is used as a means of screening contracts in
order to identify possible farmer types as a first step to inform
incentive-compatible contract design. To this end, proxies are used
to test farmer choice behavior under different cost (of measures)
and price (of contracts) settings.
2. Contract Design and Tests of Participation Constraints
Despite the public interests and externalities involved, we treat
the sustainable management of land in our contract design primarily
from a private party perspective where farm households have every-
thing to win or lose unless they take measures to sustain agricultural
practices in the area where they live. The incentive is found in the pri-
vate gains for farm households if they invest in sustainable soil con-
servation measures. The private trade-off is between investing in
land conservation and sustaining yield and income gains from the
land in the short and long term. Not investing in soil conservation
and erosion abatement will reduce yields further and result in in-
creasing income losses. Although private benefits and sustainable in-
come generation are also a function of rural infrastructures such as
market access, prices and pricing policies for agricultural inputs and
outputs, including the opportunity cost of family labor (e.g. Pagiola,
1999), this will be treated as given in our study.
The contract under evaluation here aims to facilitate and support
the private investment decision. In terms of Sykutaand and Cook's
(2001) three fundamental components of contract design (allocation
of value, uncertainty and property rights), the principal in the design,
a public entity (local or regional government) offering contracts on a
voluntary basis to a wide variety of agents (farmers), provides the
necessary financial means to invest in sustainable soil conservation
measures in return for the right to assert certain conditions with re-
spect to land use management decisions and secure its rights over
the public benefits (including water services). These public benefits
include reduced downstream sedimentation, prevention of flood
damage, avoidance of discontinuities in hydropower generation due
to downstream siltation and general preservation of landscape eco-
system functioning and biodiversity (Jägerskog et al., 2007). In ex-
change, the private value (sustainable income generation from
agricultural yields) falls upon the farmers entering the contract.
The payment mechanism in this case is credit and the necessary
underlying collateral provided by the principal, the provision costs
of which are borne by the farmers and paid from the increase in in-
come as a result of sustainable land use management practices. The
most important source of uncertainty in the investment decision is
removed through the allocation of land use certificates, securing
farmer land use over the contract period. However, some uncertainty
is still found on both sides of the transaction. Both the principal and
the farmers have limited information about the implementation and
opportunity costs of the soil conservation measures and their effec-
tiveness in improving water conditions and associated water service
levels downstream on the one hand (size of the public benefits) and
long-term farm household income levels on the other hand (size of
the private benefits). Moreover, the principal runs the risk of adverse
169
selection. Ideally, only those farmers participate who cause and face
the largest erosion problems and are able to introduce more sustain-
able land use management practices in the least cost and most effi-
cient way. This hypothesis will be tested in the choice experiment.
Farmers' willingness to enter into a contractual agreement may
also depend on trust in authorities. A substantial literature (e.g.
Cohen and Prusak, 2001; Knack, 2000; Knack and Keefer, 1997;
Tyler and Degoey, 1995) demonstrates that trust in authorities is a
crucial requirement for policy support and decisions to participate
in these policies. Where relationships between community and gov-
ernment institutions are characterized as high in trust, participation
rates are expected to be higher. Government officials in societies
with higher trust may be perceived as more trustworthy and their
policies as more credible. As a consequence, people in such societies
may be more inclined to adopt more appropriate time horizons in
making investment decisions, for instance in relation to the selection
of long run optimal production technologies. Lack of trust often man-
ifests itself in a high opt-out share in the choice experiment (see
Section 3). As we will show, trust in authorities also plays a role in
this study, although not through a disproportionate share of the
opt-out alternative.
The contract design presented above is a significant deviation
from the payments for ecosystem services literature where farmers
are financially compensated for the environmental services they pro-
vide (e.g. Engel et al., 2008). This is mainly due to the fact that the
government owns the land and farmers are merely given land use
rights. The contract specifies in most other cases the amount of land
that should be conserved and the compensation paid. The situation
in Ethiopia is in that sense different from most payments for ecosys-
tem services schemes. A few similar examples exist, but in these
cases contractual agreements are mandatory (Brouwer et al., 2011).
In order for the contract to be incentive-compatible and encourage
participation of those farmers who are part of the problem and the so-
lution, the payment should be at least equal to the landowner's op-
portunity cost, while in order for the contract design to be
economically efficient the compensation should not be higher than
the value of the benefit provided (Corato, 2008). In this study, the
contract design is informed by the previous research findings in Ethi-
opia listed before and experiences with payments for ecosystem ser-
vices elsewhere where the success of such schemes was found to
depend not only on tenure issues and access to technical assistance,
but also on access to credit and existing institutional structures (e.g.
Pagiola et al., 2005). Related to this, also the participation of poorer
farm households with no access to micro-credit facilities will be
tested.
In the choice experiment, farm households are offered a more or
less continuous ‘menu of screening contracts’ (Ferraro, 2008) to iden-
tify different types of landholders (market segments). Participation
constraints are tested in particular for farmers who (1) live in the
most erosion sensitive areas; (2) take no soil conservation measures;
and (3) whose income loss due to soil erosion exceeds the contract
price. The latter contract price includes both the costs of soil conser-
vation measures and the costs of borrowing money.
3. Choice Experiment
Following Brouwer and Akter (2010) in the context of climate
micro-insurance, the contract design is tested empirically with the
help of a choice experiment. Choice experiments have become in-
creasingly popular in the environmental economics domain (Birol
and Koundouri, 2008). However, almost no applications exist pertain-
ing to soil erosion and land degradation, with the exception of
Colombo et al. (2005). The latter assess the public value attached to
the negative impacts of soil erosion in two watersheds in South
Spain by presenting the general public with policy alternatives
which reduce desertification, protect water quality and biodiversity,
170 A. Tesfaye, R. Brouwer / Ecological Economics 73 (2012) 168–178
and safeguard rural jobs at the same time. Their experiment is not
used to inform soil conservation contract design as in this case
study. In this study, the choice experiment allows testing of appropri-
ate mechanism configurations through the value attached to charac-
teristic features of the contract design. Although hypothetical, the
outcome of the experiment provides important indicators to policy
and decision-makers of the participation constraints of different sus-
tainable land use management coordination mechanisms, i.e. the
institutional-economic conditions needed to be in place for farm
households to participate in proposed contractual agreements.
In this case, basic characteristics of the contracts include the spec-
ification of the principal, contract duration and the terms and condi-
tions under which the credit will be provided. Based on an
extensive literature review, key informant interviews and pretests
of the design, two government organizations were used to test farmer
preferences for the two most likely principals, the Regional Bureau of
Agriculture and Rural Development falling under the Federal Ministry
of Agriculture and Rural Development and at a local level the Peasant
Associations who are accountable to the Regional Bureaus and con-
tributed to previous large-scale soil conservation policy implementa-
tion efforts (Osman and Sauerborn, 2001). Non-governmental local
farmer cooperatives were also tested, but found to be not a realistic
alternative, most importantly because they have no rights to issue
land use certificates contrary to the Regional Bureau and Peasant As-
sociation, and their diverse and sometimes weak organizational
structure at individual community level. Given the positive correla-
tion found in the literature between land certification and land in-
vestment decisions in Ethiopia (Holden et al., 2009), land use
certificates are considered an important characteristic of the contract.
Land use certificates are the registration of land that was previously
used without formal title. The title gives the land holder usufruct
rights. The Ethiopian constitution states that all land belongs to the
state and cannot be sold or exchanged from hand to hand. However,
in 2005 a Federal land use proclamation stated that farmers have a
perpetual use right on their agricultural holdings. To this end, land
use certificates were issued. Ethiopian farmers have seen frequent
land redistributions and are hence often uncertain about their land
use rights. Those farmers who do not yet have a land use certificate
can obtain one with the contract, while those farmers who already
have a certificate are guaranteed that their certificate remains se-
cured over the contract lifetime. After each contract period, the con-
tract can be renewed again. Contracts are offered for the duration of
1, 2, 3, 5 or 10 years.
In exchange for different credit and hence payback amounts (with
a maximum credit of 3000 Birr 1) and additional extension services, 2
farmers commit to investing the money in soil conservation measures
and monthly pay-backs spread equally over the duration of the con-
tract length at the prevailing market interest rate. 3 Additional exten-
sion services provided by trained local and regional extension officers
would be provided by the principal to (1) assist farmers in the con-
struction and maintenance of the soil conservation structures, and
(2) monitor compliance with the contractual agreements and avoid
moral hazard. 4 The credit ceiling was fixed based on the limited avail-
able information about the investment and maintenance costs of
1
Birr is the local currency in Ethiopia. In December 2009 US$ 1 was about 12.56
Ethiopian Birr (Commercial Bank of Ethiopia, 2009). Per capita income in Ethiopia in
2008 was US$ 280 (World Bank, 2009).
2
Additional extension services refer to more technical advice from local or regional
extension officers than the current average of at most once a year.
3
Respondents were told that they could borrow up to a limit of 3000 Birr for taking
the soil conservation measures. The monthly payback amounts reflect different credit
amounts for different contract durations. The credit can only be used for financing
the implementation of the soil conservation measures.
4
An important advantage of the approach taken here compared to existing pay-
ments for ecosystem service schemes where farmers are compensated for their land
conservation efforts is the avoidance of the risk of free-riding.
possible soil conservation measures in the literature, available infor-
mation about average income levels from the World Bank, and pretest
information about credit uptake in the case study area.
Three possible soil conservation measures are identified in the
contract: soil bunds with grass strips, stone bunds and fanya juu
with grass strips. Soil and stone bunds are ridges and ditches made
of soil or stone, dug across the slope along the contour. Fanya juu
are most labor intensive to construct and consist of terraces made
by digging a trench and throwing the soil uphill to form an embank-
ment. These three measures are among the best known structures
used to prevent run-off and conserve soil and water in Ethiopia.
Fanya juu are most effective in reducing soil erosion, followed by
stone bunds and soil bunds (e.g. Herweg and Ludi, 1999). Grass can
be grown on the soil bunds and fanya juu to strengthen the soil con-
servation structure. Shiferaw and Holden (1998) show that invest-
ment and maintenance costs are on average highest for fanya juu
and lowest for soil bunds.
The main components of the contract design are summarized in
Table 1.
Alternative contractual designs are created by combining the six
characteristics presented in Table 1 based on their different possible
levels. This yields 1440 possible combinations. Because farmers can-
not be shown all 1440 different choice options, the number of possi-
ble combinations was reduced to 162 choice tasks, which were
blocked in 18 versions of 9 choice tasks each based on a D-efficient
main effects statistical design procedure using Sawtooth Software. A
balanced overlap method was used to generate the design to approx-
imate orthogonality conditions whilst allowing for predefined rela-
tionships between attributes.
Each farmer in the survey (see next section) was randomly shown
one of these 18 versions and answered 9 choice cards. Each choice
card shows two choice alternatives describing two different contrac-
tual agreements along with the option to choose none of the two. The
latter ‘opt-out’ option, as it was explained to farmers, implies facing
increasing soil erosion in the future and choosing not to invest extra
in sustainable soil conservation measures with the help of the princi-
pal through the conclusion of a contractual agreement. On the card it
was shown that the cost in this baseline alternative is zero. Farmers
who choose this ‘opt-out’ option are asked in a follow-up question
for their underlying reasons. In order to make sure farmers have a
clear understanding of the choice task, they are first asked to make
their choice using an instruction card, allowing them to ask questions
about the task before the experiment started.
For the choice experiment, interviewers were trained to memorize
a standard text introducing the contractual agreement. A card dis-
playing the contractual agreement and its specific characteristics
was used to help rural farm households understand (the objective
of) the choice task. An example of a choice card is presented in
Fig. 1. The survey targeted rural residents with limited education.
Therefore the attributes and their levels were conveyed on the choice
cards to respondents with pictographs and as little text as possible in
Amharic, the national language in Ethiopia. Each choice card was
Table 1
Characterization of the contractual agreements in the choice experiment.
Main characteristic Detailed levels in contract
Principal (contract provider) Regional Agricultural Bureau
Local Peasant Association
Contract length 1–2–3–5–10 years
Monthly payment 50–100–150–200–250–300 Birr
Land use certificate guarantee Yes, no
Soil conservation measure Stone bund
Soil bund
Fanya juu
Additional extension service 1–2–4–6 times per year
 A. Tesfaye, R. Brouwer / Ecological Economics 73 (2012) 168–178
Fig. 1. Example of a choice card.
printed on a separate sheet of paper, laminated, and bound together
with other choice cards into a spiral binder for multiple uses.
4. Statistical Choice Model
The choice model that informs this study has its roots in random
utility theory (e.g. Ben-Akiva and Lerman, 1985) and Lancaster's attri-
bute based utility theory (Lancaster, 1991). The random utility ap-
proach describes the utility of a respondent i's choice for alternative
j Uij as consisting of a systematic (observable) component Vij and an
error (unobservable) component εij (Eq. (1)). Vij is usually specified
as a linear function, additive in utility, where X is a vector of k attri-
butes associated with alternative j – in this case the terms and condi-
tions of the contract design – and β is the corresponding coefficient
vector.
U ij ¼ V ij þ εij ¼ βX ij þ εij ð1Þ
The standard choice model, the multinomial logit (MNL) model
(McFadden, 1974), assumes that the random component of the
171
utility of the alternatives is independently and identically (Gum-
bel) distributed (i.i.d.) with a type I extreme value (EV) distribu-
tion. In the MNL model, substitution patterns are defined by the
Independence of Irrelevant Alternatives (IIA) restriction. This re-
striction states that the relative probabilities of two alternatives
are unaffected by other alternatives (Kanninen, 2007) and follows
directly from the i.i.d. EV error terms. In addition, the responsive-
ness to or preferences for attributes of different alternatives are
assumed to be homogeneous across individuals. These assump-
tions lead to a closed-form mathematical model that enables esti-
mation through maximum likelihood (ML) procedures (e.g. Green,
2003).
Over the past decades alternative modeling approaches have been
developed relaxing the IIA assumption, such as mixed logit models,
including random parameter logit (RPL) and error-component (EC)
models. Mixed logit models account for respondent differences (pref-
erence heterogeneity) and repeated choices (Train, 2003). In order to
account for preference heterogeneity, a vector of random coefficients
of the attributes Xk for individual i can be included in Eq. (1)
representing individual preference variation (Eq. (2)). The utility
172 A. Tesfaye, R. Brouwer / Ecological Economics 73 (2012) 168–178

coefficients β vary according to individual (hence βi) with density continuous over the interval spanned by the distribution for the pref-
function f(β). This density can be a function of any set of parameters, erence parameters (Scarpa et al., 2005).
and represents in this case the mean and covariance of β in the sam-
ple population. Mixed logit models assume heterogeneity to be U ij ¼ βi X ij þ εij ¼ βX ij þ f ðβÞX ij þ εij ð2Þ

Fig. 2. Location of the Gedeb watershed in Ethiopia.

 A. Tesfaye, R. Brouwer / Ecological Economics 73 (2012) 168–178 173

EC models accommodate correlation between the utilities of alterna- Table 2

tives (Brownstone and Train, 1999). Correlation between alternatives is Sample characteristics of respondents.

accounted for by including an error component with zero mean in the Household characteristic Machakel Gozamn Senan
utility function specification to allow for heteroskedasticity between
Gender (% male) 85.2 97.2 95.6
those alternatives that are likely to be correlated. Scarpa et al. (2005) Average age 48 43 45
recommend applying EC models when comparing less familiar (hypo- Share illiterate (%) 45.6 42.4 47.2
thetical) alternatives with better known (existing) ones (the opt-out Average household size 5.4 5.7 5.5
Average land size (ha) 1.2 0.8 0.7
in this case). A dummy variable dj taking the value 1 for each hypothet-
Average livestock holding (TLU) 5.4 5.2 3.2
ical alternative is included in the utility function of alternative j (Eq. (3)). Average income from crop production (Birr/year) 13,934 7773 7069
λj is the parameter of the individual specific random error-component Average income from off-farm activity (Birr/year) 1441 1462 1626
and is assumed to have a standard normal distribution N[0,1]. Share with access to micro credit (%) 16.4 14.4 10.4
Share living below national poverty line (%) 30.4 50.4 52.4
U ij ¼ βX ij þ f ðβÞX ij þ λdj þ εij ð3Þ Share with land use certificate (%) 94.0 93.6 86.4
Share with access to extension service (%) 90.0 92.3 92.0
Share taking soil conservation measures (%) 69.6 67.6 62.8
Based on the choice design used in this case study, Eq. (3) can be Average annual yield loss due to erosion (kg/ha)a 108 178 227
rewritten as: a
Self-reported annual losses over the period 2006–2008.

U ij ¼ βk X ijk þ f ðβk ÞX ijk þ βy Y ij þ λdj þ εij : ð4Þ

In this case study, alternatives are defined in terms of possible
contract designs for farmers to take specific soil conservation mea-
sures on their land through the provision of credit. The incentive
compatibility of the contract design is tested through the inclusion
of different contractual terms and conditions (the attributes Xk pre-
sented in Table 1 in Section 3), and accounting for famer characteris-
tics Y in Eq. (4), such as their exposure level to soil erosion and their
coping capacity (e.g. do they take soil conservation measures already
and do they have access to credit facilities).
5. Case Study
The study is carried out in the Gedeb watershed, which is part of
the wider Choke Mountain watershed, the largest watershed of the
Blue Nile river basin in the north-east of Ethiopia, 300 km north of
the capital Addis Ababa (see Fig. 2). The watershed covers an area
of 871 km 2 with an estimated population of 495 thousand people
according to CSA (2007), living in four administrative units called
woredas: Gozamn, Senan, Machakel and Debre Elias.
The area has humid to sub-humid climatic conditions with an annu-
al rainfall ranging from 920 to 1649 mm. The temperature in the water-
shed varies between 7.5 and 22.5 °C depending on altitude. Agriculture
is the most important economic activity and way of life for over 80% of
the households living in the watershed. The existing farming system is
mixed crop–livestock subsistence farming. Almost all farm households
have livestock. The main crops grown in the area are tef, wheat, barley
(including the local variety called engedo) and potato. Tef is one of the
major staple crops in the country. For sustainable socio-economic de-
velopment of the area, soil and water conservation is vital.
The Gedeb watershed faces serious soil erosion problems due to
unsustainable land use practices such as deforestation, intensive crop
cultivation and overgrazing combined with increasing pressures from
population growth and increasing rainfall (Haileslassie et al., 2008).
The estimated annual soil loss in the watershed ranges between 10 kg
and 140 t per hectare depending on altitude and slope, with an average
throughout the watershed of 9.1 t per hectare per year (Emrie, 2008).
The case study is conducted in three of the four woredas to account
for different soil erosion exposure levels: Senan, Gozamn and Macha-
kel. The elevation level of the Gedeb watershed ranges from 1500 to
4000 m above sea level (MASL). Senan is high land (>3500 MASL),
Machakel lowland (1500 MASL), while Gozamn is found in between
low and high land (2000-2500 MASL). Soil erosion problems are great-
est in Senan, followed by Gozamn and least of a problem in Machakel.
In order to test the contract design through the presented choice ex-
periment, a rural household survey was conducted in the three above
mentioned woredas of the Gedeb watershed. Two hundred and fifty ran-
domly selected household heads were interviewed in each woreda in July
2009 after one round of focus group discussions in the case study area and
two rounds of pretests. The questionnaire used for the survey consisted of
three main parts. The first part dealt with the farmers' socio-demographic
and economic characteristics, the second part was about farmer percep-
tion and attitude towards the soil erosion problems in the watershed
and the last part included the choice experiment.
6. Farm Household Characteristics
The sample characteristics are presented in Table 2. A distinction is
made between the three woredas. Most of the 750 respondents inter-
viewed (93%) were male household heads with an average age of
45 years (respondents ranged in age between 18 and 95 years) and av-
erage family size of 5, with a maximum of 12. A slight difference be-
tween the woredas is observed with regard to mean age and family
size. However, these differences are not statistically significant.5 More
than 40% of the sample is illiterate, only 23% had some kind of formal
schooling while the rest is able to read and write without any formal
training. The literacy rate is highest in Gozamn and lowest in Senan.
For 81% of the respondents farming is their principal occupation, 19%
supplements their farm income with some form of off-farm activity
such as the sale of firewood and petty trade. The average land size is
0.9 ha, and significantly smaller in Senan and Gozamn than in Macha-
kel. In the study area about 90% of the households reported to have a
land use certificate. However, when asked about the current tenure sys-
tem, a third stated to be dissatisfied because of the unfair and unequal
distribution of crop land among community members. Moreover, it
appeared that land use certificates are sometimes issued to farmers
under the condition that they implement soil conservation measures.
If they do not take measures or if they are unable to reduce soil erosion
they may still face the threat that their land will be taken away from
them. In the study area many young and recently married couples are
landless, so even with the current distribution of land use certificates,
part of the farmers in the sample believe that some kind of redistribu-
tion of land will be inevitable in the future as these landless young cou-
ples cannot start and maintain a household without land. Landless
farmers produce crops either on rented land or in the form of share-
cropping. Sharecropping occurs primarily between landless households
and landowners who lack sufficient family labor to cultivate crops.
Significant differences are found between woredas in terms of
farm household income. Average farm income from crop cultivation
is highest in Machakel and lowest in Senan. On the other hand, off-
farm household income is higher in Senan compared to Machakel
and Gozamn. Another important component of the farming system
5
For ease of reading, the outcomes of the statistical tests performed on relationships
discussed in this section are not presented in the text. All test results are available from
the authors upon request.
174 A. Tesfaye, R. Brouwer / Ecological Economics 73 (2012) 168–178
in the study area is livestock holding. Almost all respondents (96%)
own animals such as cows, goats and chicken. Total livestock holding
per farmer is aggregated into Tropical Livestock Units (TLU), where
one TLU equals 250 kg life weight. The average livestock holding in
the sample is 4.6 and varies significantly between Machakel and
Gozamn on the one hand and Senan on the other. Overall, 44% of
the sample lives under the national poverty threshold value. This is
higher than the country's national share of 39% (CIA, 2009). In Macha-
kel, the share of farmers living below the poverty line is lower than
this national average, while in Gozamn and Senan just over half of
the sample lives below the national poverty line.
A majority of the farmers (86%) do not use existing credit facilities,
mainly provided by local micro-finance enterprises, most importantly
because they lack the necessary collateral. No significant income differ-
ences can be detected between those farm households who have access
to credit and those who do not. Of those respondents who have access
to credit 55% live above the poverty line. Those who have credit use it
to purchase fertilizer, seed, and animal fodder. Extension services are
also available in the study area and around 90% of all farmers receive
some form of technical advice at least once a year from a development
agent appointed by the government. The advice refers in most cases to
technical support related to soil and water conservation measures,
ploughing, weed and pest control. Farmers in Senan perceive soil ero-
sion as the most important problem undermining soil fertility. Sixty
percent reported to face severe to very severe soil erosion problems,
whereas this was 47% in Gozamn and only 7% in Machakel. Farmers
were asked to carefully consider the impacts of soil erosion on their
yields and provide estimates of annual yield losses as a result of soil ero-
sion only (and not any other factors) over the past three years. These
quantified estimates based on farmers' own expert judgment confirmed
qualitative perceptions across the three woredas. Annual per hectare
yield losses are, on average, significantly higher in Senan (227 kg)
than in Gozamn (178 kg) and Machakel (108 kg). These figures are con-
sistent with available average yield loss information at national level es-
timated by the FAO (1986) and Hurni (1988). Across all woredas, the
estimated annual damage costs due to soil erosion are, on average,
20% of the total income generated by crop production, varying from
10% in Machakel to 40% in Senan. These rough estimates based on farm-
er self-reported market values of their yield loss seem inflated com-
pared to experimental agronomic studies, which reported on-site
costs of soil erosion for Ethiopia ranging from 2 to 7% of agricultural in-
come (e.g. Bojo and Cassells, 1995; Sonneveld, 2002; Sutcliffe, 1993).
Two thirds of all farmers claim to take soil conservation measures. This
share is more or less the same in Machakel and Gozamn (69%), and slight-
ly lower in Senan (63%). This is higher than expected. The high share of
respondents claiming that they are taking soil conservation measures is
expected to be inflated by fears of losing their land use certificate, despite
the fact that it was emphasized at the beginning of each interview that the
survey was conducted independently of existing organizations, the an-
swers of respondents would be treated completely confidential and not
shared with anyone else and respondents would not be revisited after-
wards by anyone to ask them questions about their replies.
Farmers who take soil conservation measures face significantly
lower per hectare yield losses due to soil erosion than farmers who do
not take any measures in the two most erosion prone areas Gozamn
and Senan, while no significant difference can be detected in Machakel
where yield losses are as expected substantially lower for both groups.6
Remarkably, no significant income differences can be found between
farm households who take soil conservation measures and those who
do not. One possible reason for this is that the self-reported agricultural
income in the predominantly mixed farming systems also includes
other on-farm income besides direct crop yield related income. Soil
6
Yield losses due to soil erosion in Machakel are about half of those in Gozamn, where
yield losses are 172 and 191 kg/ha/year for farmers with and without soil conservation mea-
sures respectively. These numbers are 206 and 279 kg/ha/year for Senan, respectively.
bunds are used most often (68% of all the cases), followed by fanya
juu (18%) and stone bunds (14%). Stone bunds are used least because
of the lack of sufficient stones. Soil bunds are most common in Senan
and Gozamn, while fanya juu and soil bunds are most often applied in
Machakel. An important reason for the more popular use of soil bunds
is its low cost price (on average 700 Birr/ha/year). Fanya juu is most ex-
pensive (on average 1700 Birr/ha/year), while stone bunds are some-
where in between (on average 1300 Birr/ha/year).
A rough cost–benefit analysis based on the available information
from farmers who take soil conservation measures about their imple-
mentation costs (on average 1030 Birr/ha/year) and available infor-
mation from farmers who do not take any soil conservation
measures about their annual damage costs due to erosion related
yield losses (on average 1750 Birr/ha/year) shows that it is economi-
cally beneficial for farmers to protect their land. This suggests that
based on private considerations, farmers have a strong incentive to
participate in the proposed soil conservation contracts.
7. Choice Experiment Results
A majority of farmers felt sufficiently confident about and trusted
the terms and conditions of the contractual agreements they were of-
fered in the choice experiment and were interested in concluding a
contract to implement soil conservation measures on their land to re-
duce soil erosion. Twenty-three of the 750 farmers (3%) refused to
enter into a contract, either because they felt the current situation
on their land is good enough (all these farmers lived in Machakel
where erosion is less of a problem) or because they were unable to af-
ford to borrow money. None of these respondents indicated that they
do not trust the authorities. The results of farmer choice behavior in
the choice experiment, including the 23 farmers who consistently
chose none of the two presented contracts, are presented in Table 3.
Only those variables are presented that appeared to have a significant
effect at least at the 10% significance level on farmer choice behavior
for one of the two contract alternatives. The number of observations
is slightly lower than 6750 (750 respondents times 9 choices) due
to missing values for some of the explanatory variables.
A combined random parameters and error component logit model
was estimated in NLOGIT version 4.0 that accounts for the panel data
structure of the choice model. 7 For efficiency purposes, the model is
estimated using a Halton sequence of 100 replications in a quasi-
Monte Carlo maximum likelihood simulation (Bhat, 2001). The
model is highly significant (outcome of the model χ 2 is 4943.148
with 23 degrees of freedom) with a relatively high pseudo R 2 for
this type of cross-section panel data analysis of almost 35%. As
expected, no selection bias could be detected between the unlabelled
contract alternatives. The first option was chosen in 44% and the sec-
ond option in 47% of all choice occasions. The ‘opt-out’ (none of the
two) was chosen in the remaining 9% of the choice occasions. The
outcome for the error component is highly significant at the one per-
cent level and indicates the presence of heteroskedasticity, i.e.
farmers perceived the two hypothetical contract alternatives distinct-
ly different from the existing situation. The significant positive out-
come of the alternative specific constant (ASC) implies that farmers
prefer a change instead of no change from the current situation.
All attributes have a significant impact on choice behavior and are
characterized by preference heterogeneity as can be seen from the
significant standard deviations of the estimated random parameters,
except the contract price which is included as a fixed parameter
7
We also tested different latent class models, but these appeared to fit the data poorly.
Based on the Akaike Information Criterion (AIC) and Bayesian Information Criterion (BIC),
four classes were identified, but we were unable to properly explain class membership in
the segment choice equations based on a stable set of significant variables. Attributes were
insignificant in two of the four classes, while at most the location where the individual
farmer lives and whether the respondent belongs to the group of poorer farmers with
no access to credit showed up as significant explanatory variables of class membership.
 A. Tesfaye, R. Brouwer / Ecological Economics 73 (2012) 168–178 175

Table 3
Estimated choice model.

Variable Coding Mean Standard Coefficient Standard Random parameters

deviation estimate error
Standard deviation Standard error

ASC 4.418⁎⁎⁎ 0.556

Contract characteristics (attributes)
If contract provider is Regional Bureau Dummy 0.332 0.471 − 0.094⁎⁎ 0.048 1.197⁎⁎⁎ 0.098
Contract length (years) Linear 2.821 3.298 0.023⁎⁎⁎ 0.007 0.066⁎⁎⁎ 0.014
If contract includes land use certificate Dummy 0.333 0.471 1.423⁎⁎⁎ 0.090 2.438⁎⁎⁎ 0.125
If soil conservation measure is soil bund Dummy 0.224 0.471 0.315⁎⁎⁎ 0.062 1.004⁎⁎⁎ 0.116
If soil conservation measure is fanya juu Dummy 0.224 0.471 0.238⁎⁎⁎ 0.050 0.455⁎⁎⁎ 0.184
Extension service frequency (visits per year) Linear 2.147 2.186 0.082⁎⁎⁎ 0.013 0.143⁎⁎⁎ 0.021
Contract price (Birr/month) Linear 115.277 106.922 − 0.003⁎⁎⁎ 0.0003

Farm household characteristics (preference heterogeneity)

If farmer lives in Senan Dummy 0.333 0.471 0.784⁎⁎ 0.328
If farmer lives in Machakel Dummy 0.333 0.471 − 1.487⁎⁎⁎ 0.350
If farmer already takes soil conservation measures Dummy 0.667 0.471 − 0.967⁎⁎⁎ 0.313
If low income and no access to credit Dummy 0.593 0.491 − 0.572⁎⁎ 0.294
Amount of livestock owned (Tropical Livestock Units) Linear 4.624 3.129 0.165⁎⁎⁎ 0.057
Value land use certificate if there is no or little trust Dummy 0.102 0.303 − 0.369⁎⁎⁎ 0.152
If farmer takes no soil conservation measures and:
Contract price b income loss Dummy 0.169 0.374 1.014⁎⁎⁎ 0.102
Soil conservation measure is soil bund Dummy 0.075 0.263 − 0.218⁎⁎ 0.098

Model summary statistics

σ error component 3.696⁎⁎⁎ 0.222
Log likelihood − 4696.871
McFadden R-squared 0.345
N 6525

Significance levels: *** 1% ** 5%.

under the assumption of constant marginal utility of income. Follow-
ing Hensher et al. (2005), the random parameters of all dummy vari-
ables in Table 3 are estimated using a uniform distribution. The
contract length and extension services are presented in Table 3 as lin-
ear effects coded variables. Their random parameters are estimated
using a normal distribution. Higher attribute levels are valued posi-
tively. Only price has, as expected, a significant negative impact on
the probability that a contract is chosen. The negative impact of the
monetary price attribute indicates that the trade-off presented to
farmers of paying for credit to enable them to implement measures
on their land to reduce soil erosion through the provision of a con-
tract functioned as foreseen.
A dummy variable is included for the regional bureau of agricul-
ture (RBA), so the Local Peasant Association is the baseline category.
Farmers prefer to enter into a contract with the local government in-
stead of the regional government. Moreover, farmers prefer longer-
term contracts and more intensive collaboration with extension offi-
cers to get more frequently advice on soil conservation. Although a
majority receives technical advice, current extension services aimed
at reducing soil erosion are considered insufficient by most respon-
dents. Parallel to the increase in frequency, the quality of the exten-
sion service is expected to play an important role too.
Despite the fact that most farmers already have a land use certifi-
cate, this contract attribute is valued highly by all farmers. An impor-
tant reason for this may be farmer experiences with the long history
of land redistribution policies. Although farmers have been assigned
land use certificates, they seem to lack trust that the certificates will
guarantee future use rights and therefore attach a particularly high
value to this attribute. The coefficient estimate is by far the highest
for all attribute dummy variables. A third of the sample also indicated
that the current distribution of land is unfair and not sustainable
given increasing demand for land from younger generations. No sig-
nificant effect could be found when interacting the dummy for the
land use certificate attribute with the dummy representing farmers
who already have a land use certificate. This means that farmers
with and without a land use certificate value the attribute equally
high. On the other hand, a significant negative effect is found for the
small share of respondents who have little or no trust in the proposed
contracts. This group values the land use certificate significantly less.
When examining the results for the type of soil conservation mea-
sures, farmers prefer soil bund and fanya juu over stone bund, which is
used as the baseline category. Soil bund is slightly more preferred to
stone bund than fanya juu, but the difference between soil bund and
fanya juu is not statistically significant (the Wald test statistic equals
1.475; pb 0.225). Hence, when given the choice, farmers are more likely
to implement a soil bund or fanya juu. Farmer preferences for soil
bunds can be explained, because they are most commonly implemented
throughout the watershed already, least labor intensive and least costly of
all three measures. Farmers also consider soil bunds the simplest measure
to implement of all three measures. Fanya juu are more labor intensive
and more expensive than soil bunds. Farmer preferences for this measure
can be explained because they are most effective in reducing soil erosion.
A significant correction factor is found for farmers who do not take any
soil conservation measures yet when examining their interaction with
the soil conservation measures in Table 3. Compared to farmers who al-
ready take measures, farmers without soil conservation measures still
prefer soil bund over stone bund (the negative coefficient −0.218 does
not outweigh the positive coefficient 0.315 for soil bund), but significantly
less at the 10% level than in the case of fanya juu for which no such correc-
tion factor can be detected (the Wald test statistic equals 2.795; pb 0.095).
Hence, soil bunds and fanya juu are most preferred overall, but farmers
who have no experience implementing soil conservation measures ap-
pear to have stronger preferences for fanya juu than soil bunds.
Turning to the other non-attribute variables measuring preference
heterogeneity, the choice experiment and contractual design seem to
pass the most important participation constraint tests (see Section 2).
First, the location of the farmer plays a significant role in choice behav-
ior. Gozamn, the midland woreda, represents the baseline category in
the model presented in Table 3.8 As expected, farmers living in
8
All farmer preference heterogeneity variables in Table 3 are included in the estimated
choice model as an interaction term with the ASC except for the value attached to the at-
tribute land use certificate by farmers with little or no trust in the contracts and the value
attached to the attribute soil bunds by farmers without soil conservation measures.
176 A. Tesfaye, R. Brouwer / Ecological Economics 73 (2012) 168–178
Table 4
Market share simulation results (%).
Senan
All farmers 82.5
Farmers without SCM 90.1
Farmers with SCM
No contract
Total
Soil bund
All farmers 47.0
Farmers without SCM
Farmers with SCM 24.7
No contract
Total
Low income and no access to credit
All farmers 35.6
Farmers without SCM 55.5
Farmers with SCM
No contract
Total
SCM: soil conservation measures.
Machakel where soil erosion problems are lowest are less likely to par-
ticipate than farmers in Gozamn, while farmers living in Senan where
soil erosion problems are highest are more likely to participate than
farmers in Gozamn. Second, farmers who already take measures are
less likely to conclude a contract, confirming that the contracts appeal
most to the target group most in need of taking action, i.e. those farmers
are expected to participate who face the biggest soil erosion problems
and do not take any measures yet.
Third, and perhaps the strongest test, those farmers who take no
soil conservation measures yet are more likely to participate if the
contract price is less than or equal to the income losses suffered
from soil erosion. The dummy variable has the value one if the equa-
tion ‘contract price b income loss’ applies. For farmers who already
take soil conservation measures, the expectation was that they
would be more likely to participate if their self-reported annual soil
conservation implementation costs 9 are lower than their annual
yield losses due to soil erosion, i.e. if soil conservation efforts are al-
ready beneficial. This would further avoid adverse selection as choices
would be driven by economic rational considerations if only farmers
who already take soil conservation measures participate whose pri-
vate benefits offset the investment costs in soil conservation. Howev-
er, this variable was not statistically significant at the 10% level. Other
variables that were also tested to distinguish between more or less ef-
ficiently operating farmers, but were not statistically significant in-
cluded farm size and crop income generated per hectare.
Finally, the contracts were expected to appeal to another important
target group, namely poorer farmers with no access to credit
opportunities. The variable ‘low income and no access to credit’ is an in-
teraction term between farm households with an annual income level
lower than the sample average of 9900 Birr per year and no access to
credit facilities. Poorer households were expected to be less willing to
enter a contractual agreement and pay for credit to finance soil conser-
vation measures. However, providing these poorer households access to
credit was expected to offset this negative effect. The significant nega-
tive sign indicates that poorer households without access to credit are
less likely to enter into a contractual agreement than higher income
households with access to credit. The same effect is found when includ-
ing a dummy variable for respondents who do not have access to credit
(without the interaction with low income). Wealthier households with
9
These implementation costs include the one time off investment costs in soil con-
servation measures, the opportunity costs of productive land needed to be set aside for
the conservation structure and annual maintenance costs.
Machakel No contract Total
10.4 7.1 100.0
4.4
5.5
100.0
Fanya juu No contract
44.8 8.2 100.0
67.9
7.4
100.0
Higher income access to credit No contract
56.5 7.9 100.0
37.2
7.3
100.0
more livestock are more willing to conclude a contract, most likely be-
cause they can afford to pay for credit. So, even if we control for house-
hold wealth, the effect for farmers belonging to a poorer segment
without access to credit remains negative. No significant effect could
be detected for any other demographic household characteristic (e.g.
age of the household head, education and literacy rate).
8. Contract Market Shares
Based on the estimated choice model, market share simulations are
carried out (also in NLOGIT 4) to test how changes in the level of the
institutional-economic incentives impact upon choice probabilities of
each contract design. Different contract policies were created to explore
which mix of institutional-economic incentives generates the highest
farm household demand for a particular contract measured through
the highest market share. The market shares are simulated for the
main target groups, i.e. farmers living in different erosion prone areas,
with and without soil conservation measures, with and without access
to credit facilities. The key results are presented in Table 4. The market
shares are estimated for the average farmer in the study area under the
assumption that the contract will be offered for a period of 10 years and
a monthly credit payback price of 175 Birr (the average price based on
the 6 price levels in the choice experiment) for which farmers obtain
a guaranteed land use right (certificate) and technical advice from an
extension service officer 4 times per year.
Table 4 first shows the market shares across all farmers when
varying only the location, followed by the specification of the type
of measure in the contracts and different farm household characteris-
tics. As expected from the choice model results presented in Table 3,
the market shares are consistently highest for farmers without soil
conservation measures. Also the share of farmers who are expected
not to conclude a contractual agreement is shown. Just over 80% of
all farmers concluding a contract would be found in Senan, 35% of
the farmers would belong to a lower income group with no access
to credit, and choice behavior would not be very different across ei-
ther soil bund or fanya juu if farmers would be allowed to choose be-
tween these two types of measures in the contract specification.
In a second step, also a distinction is made between farmers with
and without soil conservation measures. For instance, the market
share in Senan increases to 90% if only farmers without soil conserva-
tion measures would be accounted for, while the share of farmers
with soil conservation measures concluding a contract in Machakel
is only 4%. Similar increases in market shares as a result of targeting
 A. Tesfaye, R. Brouwer / Ecological Economics 73 (2012) 168–178
farmers without soil conservation measures can be observed when
examining the results for lower income groups without access to
credit. An additional effect is also found if farmers without measures
are allowed to choose between types of measures. In that case, a
much larger share of farmers not taking soil conservation measures
is expected to implement the fanya juu.
Instead of varying only one or two factors during the market sim-
ulation (keeping other influencing variables fixed), also scenarios can
be constructed where multiple variables change at the same time. For
example, when offering the same contract as before and comparing
choice behavior of farm households with and without measures and
access to credit, 55% of the market would consist of lower income
farmers with no access to credit and who take no soil conservation
measures compared to 37% higher income farmers with measures
and access to credit. Varying in this case also the location where
farmers live, this market share increases further to 87% for farm
households living in the more erosion exposed woreda Senan.
9. Discussion and Conclusions
The main objective of this paper was to assess whether, and if so
under which terms and conditions, rural households were willing to
enter into contractual agreements to invest in soil conservation
measures on their land in one of the most soil erosion affected
parts of the world. To this end, contractual agreements were intro-
duced and participation constraints tested under different soil ero-
sion and institutional-economic conditions in a survey-based
choice experiment targeting 750 rural households, with the aim to
inform improvement efforts of the incentive structure of current
land use management. The survey provided new insights into previ-
ously unknown differences between farmers who take soil conser-
vation measures and farmers who do not. Not only in terms of
individual farm household characteristics, but also in terms of (i)
the damage costs due to soil erosion, (ii) the implementation costs
of soil conservation measures, and (iii) the effectiveness of soil con-
servation measures in reducing yield losses. This allowed us to as-
sess the economic efficiency and hence incentive behind
investment decisions in soil conservation. The choice experiment
revealed important information related to demand for different con-
tractual designs and market segments.
Important reasons why not all farm households take soil conserva-
tion measures tested in this study include the lack of finance, knowl-
edge about conservation practices and long-term land use security.
Corresponding with the outcomes of previous studies, land use certi-
fication and intensification of extension services are among the most
important conditions needed to be in place for farmers to commit to
soil conservation efforts. Farmers have strong preferences for con-
cluding renewable longer term contracts.
Choice behavior showed that out of the three soil conservation
measures most commonly implemented in the study area, farmers
equally prefer soil bunds and fanya juu over stone bunds. Prefer-
ences for soil bunds can be easily explained because they are the
least costly soil conservation measure. Fanya juu have been identi-
fied in the literature as the most effective measure to abate soil ero-
sion, but are also by far the most costly. Farmers not taking soil
conservation measures prefer soil bunds less than farmers taking
measures already, while such a significant difference cannot be
found for fanya juu. Hence, despite their high implementation
costs fanya juu are the most preferred soil conservation measure
among farmers not taking any measures. When given the opportu-
nity to choose between soil bunds and fanya juu, two thirds would
choose the latter, suggesting that when offered the financial re-
sources to implement soil conservation measures, farmers may
also consider their effectiveness and choose ‘value for money’. It
should be noted that the soil conservation measures were explained
to all farmers participating in the rural household survey based on a
177
technical description provided by agronomic experts, but did not
refer to the costs and effectiveness of the measures. It was left up
to farmers themselves to decide which measures would be most ap-
propriate for their specific situation. We show that contracts pro-
vided 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 conserva-
tion measures, especially for those most in need of such measures.
Less than 10% of the sample of 750 farm households had doubts or
lacked confidence in the contracts' terms and conditions. The set-
up of the contract design passed three of the four main participation
constraints. As expected, farmers facing higher soil erosion rates are
more likely to participate, while farmers who already take soil con-
servation measures are less likely to participate and enter into a
contractual agreement with the local government. This suggests
that adverse selection will not play a major role when issuing con-
tracts. Only the target group poorer farmers with no access to credit
are less likely to participate. We show that farmers not taking any
soil conservation measures will do so if the contract price is lower
than or equal to the income losses suffered from soil erosion sug-
gesting rationality in their behavior.
Finally, in order to further inform the design of incentive-
compatible contracts and enable the local government to target dif-
ferent groups of farmers (market segments), a number of other fac-
tors were tested with the help of the estimated choice model,
including the operation costs of those farmers implementing soil con-
servation measures and the productivity of different sized farm
household holdings not taking soil conservation measures. However,
no significant effects could be detected for farmers operating at differ-
ent levels of economic efficiency on their choice behavior for different
contract designs. Here too further research is needed to increase gov-
ernment level of understanding when trying to identify different tar-
get groups of farmers for the purpose of the provision of incentive-
compatible contracts. The analysis presented in this paper was unable
to shed more light on possible segmentation of farmers beyond their
exposure rate to soil erosion measured through the location where
they live and whether or not they take soil conservation measures
on their land. At most, elicited preferences for implementing the
most cost-effective measure fanya juu hint at some degree of incen-
tive compatibility would contracts actually be concluded in the case
study area.
Acknowledgements
This project is funded by the Netherlands Organization for Scien-
tific Research (NWO-WOTRO) and part of the project ‘In Search of
Sustainable Catchments and Basin-wide Solidarities; Transbound-
ary Water Management of the Blue Nile River Basin’ coordinated
by UNESCO-IHE. Co-funding from the Institute for Environmental
Studies, VU University Amsterdam is gratefully acknowledged. We
are grateful to the Dean of the Faculty of Agriculture, Debre Markos
University, who helped us with the practical organization of the
rural household survey and Dr. Melesse Temessgen and Mr. Sebsib
Belay from the College of Development Studies, Addis Ababa Uni-
versity, for their support setting up the field work. A word of thanks
also goes to the interviewers recruited from Debre Markos Univer-
sity, the students Ted Veldkamp and Jurre Tanja from VU University
Amsterdam for their help with the on-site pre-testing of the survey
and focus group discussions, and the PhD researchers and supervi-
sors in the Blue Nile Hydro-Solidarity project for their useful com-
ments on the study presented in this paper, in particular Prof.
Pieter van der Zaag, Dr. Belay Simane and Dr. Workneh Negatu. A
final word of thanks goes to Alfred Wagtendonk from the Institute
for Environmental Studies for his help with the maps presented in
this paper.
178 A. Tesfaye, R. Brouwer / Ecological Economics 73 (2012) 168–178
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