Farmer Payments to Reduce Crop Burning in India

Can payments to farmers reduce crop-burning that causes negative environmental externalities? The team at Inclusion Economics has evaluated how a payment for ecosystem services scheme can increase compliance through upfront payments.

Cash transfers and air pollution

Air pollution is the top preventable cause of mortality in many low- and middle-income countries, including India. A major source of air pollution in some agricultural regions is seasonal fires caused by farmers burning crop residue, which also harms neighboring areas due to wind flows. This represents a major externality – an indirect cost to the public arising from individuals’ actions – and one the Indian government has introduced multiple measures to reduce, with limited efficacy.

Can Payments for Ecosystem Services (PES), whereby cash transfers are given out conditional on not burning, improve on the status quo?

Since 2019, researchers from Inclusion Economics at Yale University and Inclusion Economics India Centre – in collaboration with colleagues from MIT, Princeton University, and University of California, Berkeley – sought to understand how government policies to reduce air pollution can be implemented more effectively. The researchers evaluated an intervention in the Indian state of Punjab to offer Payments for Ecosystem Services (PES) contracts with partial upfront payments. These contracts reduced crop residue burning by 10 percentage points, while standard PES contracts without upfront payments showed no effect on burning . PES contracts with partial upfront payments increased farmers’ trust that they would receive the full cash transfer for complying with the condition against crop burning, and potentially also eased their liquidity constraints. The results suggest that appropriately designed incentive contracts, particularly with an upfront payment component, can help policymakers make headway on this critical but difficult problem.

Highlights

Aerial view of a burning rice field. — Makh, Shutterstock

Smoggy polluted highway — Arrush Chopra, Shutterstock

Power lines seen through pollution. — Anindito Mukherjee, Reuters

Illustration of cars and pollution. — C R Sasikumar

Related Publications

Money (Not) to Burn: Payments for Ecosystem Services to Reduce Crop Residue Burning

Pande and co-authors test whether payments for ecosystem services (PES) can curb the highly polluting practice of crop residue burning in India. They find that incorporating partial upfront payment into the contract increases compliance by 10 percentage points, which is corroborated by satellite-based burning measurements. The cost per life saved is $3600 to $5400.

View the Working Paper Pdf