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Poverty, market imperfections and time preferences: of relevance for environmental policy?

    • Published online: 01 February 1998

Rates of time preference (RTPs) of rural households in Indonesia, Zambia and Ethiopia have been measured using hypothetical questions about preferences for current versus future consumption. In general, the rates were found to be very high. Factors influencing or correlated with the personal rates of time preference were investigated through regression methods. OLS was the technique used in the estimation. Market imperfections, particularly in credit and insurance markets lead to variation in RTPs. Poverty in assets, or cash liquidity constraints, was leading to or correlated with higher rates of time preference. The poor are, therefore, less likely to invest in environmental conservation. In Zambia, independent estimates of risk preferences were made. More risk-averse people tended to have lower RTPs. The results support the hypothesis that poverty and/or liquidity scarcity lead to high RTPs. Poverty reduction may thus reduce the RTPs of the poor and reduce the 'intertemporal externality' due to high RTPs. The high average RTPs indicate, however, that complementary policies may be needed to ensure sufficient levels of investment in conservation. Another logical implication is that institutionalization of private property rights may not be a sufficient tool to initiate sustainable resource management.

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We would like to thank Arild Angelsen, Peter Hazell, John Heath, John Pender, Sara Scherr, Matti Vainio, Manfred Zeller and three anonymous reviewers for valuable comments on an earlier draft of this paper. Funds for the field work were obtained through the NORINDRA Rain Forest and Resource Management project for the case study in Indonesia and from the Ecology and Development project for the studies in Zambia and Ethiopia. Both projects were funded by the Research Council of Norway.
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Environment and Development Economics
  • ISSN: 1355-770X
  • EISSN: 1469-4395
  • URL: /core/journals/environment-and-development-economics
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