Journal of Environmental Management 68 (2003) 343353

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Soil erosion in developing countries: a socio-economic appraisal

Jayanath Ananda, Gamini Herath*
School of Business, La Trobe University, Albury-Wodonga Campus, Parkers Road, P.O. Box 821, Wodonga, Vic. 3689, Australia
Received 17 September 2002; revised 14 February 2003; accepted 7 April 2003

Abstract
Soil erosion is the single most important environmental degradation problem in the developing world. Despite the plethora of literature that
exists on the incidence, causes and impacts of soil erosion, a concrete understanding of this complex problem is lacking. This paper examines
the soil erosion problem in developing countries in order to understand the complex inter-relationships between population pressure, poverty
and environmental-institutional dynamics. Two recent theoretical developments, namely Boserups theory on population pressure, poverty
and soil erosion and Lopezs theory on environmental and institutional dynamics have been reviewed. The analysis reveals that negative
impacts of technical change, inappropriate government policies and poor institutions are largely responsible for the continued soil erosion in
developing countries. On the other hand, potential for market-based approaches to mitigate the problem is also low due to the negative
externalities involved. A deeper appreciation of institutional and environmental dynamics and policy reforms to strengthen weak institutions
may help mitigate the problem.
q 2003 Elsevier Ltd. All rights reserved.
Keywords: Soil erosion; Market approaches; Institutions; Technical change; Government policy

1. Introduction
Soil erosion is a widespread problem in agriculture in the
developing countries. The problem has far-reaching econ-
omic, political, social and environmental implications due
to both on-site and off-site damages (Thampapillai and
Anderson, 1994; Grepperud, 1995). Each year, 75 billion
tons of soil are removed due to erosion with most coming
from agricultural land and around 20 million hectares of
land are lost. Soil erosion is very high in Asia, Africa and
South America averaging 30 40 t/ha/y (Barrow, 1991). In
the humid tropics of Asia, farmers grow subsistence crops in
sloping land using highly erosive practices. An average rate
of soil loss for Asia is 138 t/ha/y (Sfeir-Younis, 1986). In the
densely populated Java, the extent of severely eroded land
increases at 1 2% per annum (Barbier, 1990). In the Citarik
subwatershed in West Java, soil erosion was estimated to be
94 and 103 t/ha/y in 1991 and 1992, respectively (Kusman-
dari and Mitchell, 1997). China has experienced serious soil
erosion problems during the last 40 years. The most serious
erosion were in the Loess Plateau where around 300 metric
tons of soil were lost (Liu, 1988). Some regions of
* Corresponding author. Tel.: 61-2-6058-3837; fax: 61-2-6058-3833.
E-mail address: g.herath@aw.latrobe.edu.au (G. Herath).
0301-4797/03/$ - see front matter q 2003 Elsevier Ltd. All rights reserved.
doi:10.1016/S0301-4797(03)00082-3
the Sichuan province lost 1110 metric tons of soil per ha/y
(Han, 1989). About 15% of the farmland lose between 80
and 120 tons of soil/ha due to erosion (Tomic, 1998).
A study of Java estimated that on-site crop productivity
losses from man made soil erosion on upland farms to be
US$320 million annually (Magrath and Arens, 1989).
The off-site impacts of upland soil erosion in tropical and
subtropical watersheds include siltation, water flow irregu-
larities, reduction of irrigation, water pollution and
agrochemical run-off. The soil sediments can reduce the
capacity of reservoirs adversely affecting irrigated agricul-
ture and hydro-electricity generation. The 6.6 billion tons of
soil lost in India each year contains 5.4 million tons of
fertiliser worth Rs. 2.2 billion (Pimental, 1993). In Costa
Rica, yearly erosion from farm and pastureland removes
nutrients worth 17% of the crop value and 14% of the value
of livestock products. In the Philippines, significant
ecological damages have been incurred on coral reefs and
fisheries and scuba diving sites in Bacuit Bay (Hodson and
Dixon, 1988). Magrath and Arens (1989) estimated the total
on-site and off-site cost of soil erosion in Java at US$340 to
406 million or 0.5% of the total GDP per year.
In order to adequately explain the complex issues in soil
erosion, it is necessary to identify the underlying causes and
gain a comprehensive understanding of the physical,
344 J. Ananda, G. Herath / Journal of Environmental Management 68 (2003) 343353
economic, political, institutional and social dimensions.
There are at least three major theoretical viewpoints on soil
erosion. First, the population explanation, which argues that
growing population pressure, causes rural people to migrate
to forest areas where they clear the forest to establish
agricultural livelihoods. Second, past policies such as price
support, subsidized credit and soil conservation subsidies
created distortions and have in some cases exacerbated
erosion. Third, poor institutions such as weak property
rights and high transactions costs have prevented the
emergence of markets that would have mitigated soil
erosion but has not received adequate attention. This
paper examines how population growth, government policy
and the institutional environment lead farmers to practice
erosive methods. It analyses the fundamental underlying
causes of soil erosion (mainly on-site erosion) to be able to
explain why it is continuing so that appropriate solutions
may be advanced to deal with it in an effective manner.
The specific objectives of this paper are to examine:
(a) the theoretical frameworks developed to explain soil
erosion in developing countries;
(b) how technical change, government policies and poor
institutions affected the incidence of soil erosion; and
(c) the potential of market-based approaches, and
appropriate policy and institutional changes to
mitigate the soil erosion problem.
The paper is organized as follows. In Section 2 the basic
theories on soil erosion are outlined. Section 3 presents a
discussion of government policies in accelerating adoption
of new technologies in agriculture and how these policies
exacerbated soil erosion. Section 4 presents an analysis of
the potential of economic and institutional approaches to
control soil erosion and Section 5 concludes with some
policy implications.
2. Theories of soil erosion
2.1. Boserups theory of population pressure,
poverty and soil erosion
A common hypothesis is that the rural poor are
dependent on natural resources for survival and hence
poverty is a major source of soil erosion. Population
growth has intensified the pressure on land for agriculture
in rural areas forcing many farmers to cultivate easily
eroded hillsides. Rapid deforestation and shifting cultiva-
tion have increased as a result. Since tropical uplands are
typically shallow and fragile in structure, they are easily
eroded. Productivity will decline but this may not be
noticeable until the topsoil has been depleted and the
infertile subsoil is exposed (Lal, 1990). Boserup (1981)
asserts that population growth may not necessarily lead to
land degradation. According to Boserup (1981) population
growth can promote more intensive agricultural practices
and more favourable technological and organisational
innovation that will not only increase productivity but
improve environmental quality as well. Boserup (1981)
suggests a number of technology and investment paths to
the intensification of agriculture that farmers can follow in
the face of rapid population growth. The first approach is
often referred to as capital led intensification. The capital
led approach involves substantial use of capital which
include non-labour inputs such as chemical fertilizer, land
conservation infrastructure such as terraces and grass strips
and planting perennials such as coffee and bananas. Her
theory suggests the following sequence of events in the
capital led approach. Rapid population growth leads to
scarcity of land relative to labour, which triggers
intensification of agricultural production. Relative prices
change as food prices increase due to increased demand.
Wages decline due to increased availability of labour but
land prices increase. New institutions such as private
property rights will emerge which facilitate the intensifica-
tion and greater investments that improve the land
resources.
There is evidence to support the capital led approach
(Templeton and Scherr, 1996; Tiffen et al., 1994). Barbier
(1998) found that in West Africa, population pressure leads
to intensification and investment in land conservation
practices and increasing market opportunities can play a
more positive role in boosting productivity (Barbier, 1998).
A study of five East African and five West African countries
show that African farmers make considerable capital
investments in protecting their land (Turner et al., 1993).
According to Matlon and Spencer (1984) the capital led path
is more sustainable and productive in fragile resource-poor
areas in Africa because it improves land quality and
productivity. For example, in the Sahel, the Sudano-
Guinean climatic zone where rainfall exceeds 800 mm/y
and the soil is good, intensification has taken place specially
in the cultivation of cotton and cereals. Fertilizer, pesticides
and price guarantees have supported intensification (Gorse
and Steeds, 1987).
The labour led approach is distinct from the capital led
approach where farmers add more labour to the production
process. The labour led path is unsustainable without
additional capital to enhance soil fertility. In East Africa,
areas with steep slopes and heavy rainfall, land conservation
investments are critical (Matlon and Spencer, 1984). Lele
and Stone (1989) identified the agro-climatic and policy
settings where either one or the other of these two paths will
dominate. They argue that the labour led path has not led to
increases in productivity specially in sub-Saharan Africa.
For example, in the Sudanian climatic zone of the Sahel
however, rainfall is less than 800 mm/y, population
densities are high, fallow periods are shorter and soil
degradation is heavy (Southgate et al., 1990). Lele and
Stone (1989) assert that the capital led path is of critical
importance for sustainable development.
 J. Ananda, G. Herath / Journal of Environmental Management 68 (2003) 343353
However, in many Asian, Latin American and African
countries, Boserups sequence was not observed (Kates and
Haarmann, 1992). Severe erosion has occurred in Asia and
Latin America in areas where population growth has been
very rapid, biologically vulnerable or fragile, and the socio-
economic conditions prevented the implementation of
conservation measures. Without additional capital, this
path is unsustainable and lead to erosion of land (Lele and
Stone, 1989). Thus an explanation which captures the
essential features of the soil erosion problem in much of
Asia, Africa and Latin America need to address the
dynamics of the soil erosion problem.
Another important issue is extensive agriculture taking
place in frontier environments where land resources are not
limiting. Boserup (1981) did not explain this phenomenon.
Pichon (1996) conceptualised the dynamics of resource
allocation by farmers in frontier environments such as the
Amazon basin. In these environments as population
expands, more land is brought under cultivation. No
technological change will occur because of the remoteness
of the land and lack of demand for such technologies. Hence
deterioration of the land resource is inevitable at least in the
short term.
2.2. Lopezs environmental and institutional dynamics
view of soil erosion
Lopez (1997) developed a framework based on environ-
mental and institutional dynamics to explain the soil erosion
problem. According to Lopez (1997) the dynamics of
institutional change relative to environmental dynamics is
crucial. The theory posits that if environmental dynamics
dominate institutional dynamics, then the soil erosion
problem will be exacerbated. However, if institutional
dynamics dominates environmental dynamics, then new
institutions that protect the land will emerge, while
improving the economic status of the farmers.
2.3. Environmental dynamics
Environmental dynamics is a predisposing factor in soil
erosion. Many communities use fragile soils such as those in
hilly slopes and practise shifting cultivation. In the unfenced
areas of Rajasthan Desert, farmers tend to overgraze the
land because of high population pressure and free use of
land (Kumar and Bhandari, 1992). In the Philippines,
logging interests have denuded large areas of forest without
any measures to arrest the degradation of the soil. Severe
erosion of land due to excessive population growth has been
documented for Nepal and Kenya (Metz, 1991; Campbell,
1981). These societies require intensive production to meet
the rising food demand, but intensification leads to severe
erosion damage. The investments needed to minimise soil
erosion (building terraces, bunds, etc.) are not made due to
absence of credit, poor tenure conditions and absence of
community cooperation to provide the labour due to lack of
345
property rights to communal lands. Monitoring is required
but there may be no effective institutions that can provide
the monitoring function. Traditional village institutions are
often ill equipped to deal with this situation. These
internally generated weakening of traditional institutions
enhance soil erosion, degradation of land and perpetuate
poverty (Lopez, 1997).
Illegal logging can increase soil erosion. In 1995, 1.6
million cubic meters of logs were extracted in Cambodia.
Logs exported illegally in 1995 were worth $185 million
(Slocomb, 2002). Laws and regulations to control logging
were violated due to poor enforcement. In Cameroon, the
expansion of logging and development of logging roads
increased exploitation of forest. These processes are caused
by weak institutions, particularly unclear property rights
(Brown and Ekoko, 2000). Logging in East and Central
Kalimanthan in Indonesia, suggests that it is a complex
phenomenon deeply engrained in the realities of rural life in
Indonesia (Casson and Obidzinski, 2002). Where there are
large stands of timber under the care of government forestry
officers, commercial cutting with official connivance is
clearly the greater cause of deforestation. In Costa Rica,
provision of credit depends on the extent of land cleared,
which has encouraged farmers to deforest their land so that
they might qualify for credit.
2.4. Institutional dynamics
Private property rights are considered best to minimise
land degradation and soil erosion specially in fragile lands.
However, private property rights may not emerge or will be
slow to emerge in such land. Hence, when population
pressure leads to greater intensification and erosion of
fragile lands, it becomes even harder for relevant insti-
tutions to emerge (Lopez, 1997). One can envision a process
where soil erosion and degradation in these lands makes
land less valuable and lower their demand. Lower incomes,
high subjective discount rate among rural poor, and absence
of economies of scale make markets less likely to emerge.
Also with rapid population growth, greater will be the
demand for intensification of land use and more likely that
environmental dynamics will dominate over institutional
dynamics.
2.5. Interactive dynamics between institutions
and the environment
If lands are fragile and institutions are weak, then
irreversible damage to the land base can occur because
institutions such as private property rights that can reduce
damage will not emerge soon enough. If initial institutions
are strong and the environmental base is solid, institutional
dynamics will dominate environmental dynamics, leading
to successful intensification of production and increased per
capita income even in fragile areas (Lopez, 1997). In areas
where the soil erosion is a continuing problem, it is clear
346 J. Ananda, G. Herath / Journal of Environmental Management 68 (2003) 343353
that environmental dynamics dominate institutional
dynamics. This is the case in many tropical countries
where soils are fragile. In many temperate countries, the
soils are more stable and the relevant institutions evolve
before irreversible damage to the soils occurs.
3. Technical change in agriculture, government
policies and soil erosion
The connection between technical change, economic
policies and the environment is of primary importance
because of the accelerated depletion of soil resources
observed in the developing countries. In the 1970s, the
desire of most governments in developing countries to attain
food self-sufficiency led to the measures that provide
incentives for adoption of the Green Revolution technology
(Herath, 1985). There is increasing recognition that these
support policies contributed to soil erosion in addition to
other environmental problems. The technical change based
on intensive use of irrigation and chemical inputs can lead to
soil erosion. The sections below present a discussion of
some of the major government policies that were
distortionary.
3.1. Government support policies for technology adoption
3.1.1. Fertilizer and agricultural credit policies
Since the 1960s, the Green Revolution technologies were
introduced in many countries actively supported by
irrigation development, subsidized credit and fertilizer
programs. In most countries in Asia government control
of the agricultural sector was the norm and self-sufficiency
was the main objective. In Vietnam, central planning
created a highly dependent wet-rice system, which led to
massive resource misallocation and land degradation (Sikor
and ORourke, 1996). Self-sufficiency is not economically
efficient and often these are adopted for political reasons
creating excessive damage to natural resources. In Maoist
China agricultural practices led to heavy erosion. A recent
study indicates that economic development in China is
likely to avoid soil degradation because of the positive
feedback to soil quality arising from rising average income,
market integration and property rights (institutional
dynamics) that may counterbalance the effects of population
growth (Lindert, 1999). In many other countries, incentives
given to rice production through government policies led to
erosion. There was rapid increase in agrochemical and
fertilizer use fostered by lower prices relative to crop
prices. In 1984, in the Philippines, Urea was sold 30% below
cost. In Sri Lanka, Urea was sold 56% below cost (Berg,
1985). In India, subsidies on the four major inputs grew by
9 12% a year in real terms between 1981 and 1993,
accounting for between 2.2 and 2.7% of the gross domestic
product (Gulati and Sharma, 1995). In India fertilizer use
jumped from 33 to 156 kg of nutrients per ha of cropped
area between the Green and Post-Green Revolution periods
(Murgai et al., 2001). In 1987, farmers in Ngadas, East Java
used 1000 kg of subsidized fertilizer per ha to produce a
crop that was half the size of what could have been produced
with improved soil conservation and green manuring
(Barbier et al., 1990). The upward trend in rice and wheat
yields occurred in spite of cropping being extended to some
marginal lands due particularly to heavy fertilizer use which
exacerbated the off-site effects of soil erosion.
During the Post-Green Revolution period, when intensi-
fication was adopted, the marginal returns have been lower.
Continued intensification led to degradation of the natural
resource base including soil erosion, salinisation etc.
(Murgai et al., 2001). In the Post-Green Revolution period,
wheat yield in Indian and Pakistan Punjab grew at 2% a year
but negative for rice, raising questions about the sustain-
ability of the Green Revolution technology. There has been
considerable degradation of the soil and water resource base
in both the Indian and Pakistan Punjab. The study by Murgai
et al.(2001) show that in Pakistan Punjab, technological
change and other improvements produced an average
growth rate of 0.94% per year and that resource degradation
in aggregate lowered growth by 0.53% per year. Despite
heavy erosion and decline in acreage per capita, improved
farm technologies have so far contributed to an increase in
the food supply but the trend does not augur well for China
in the long run (Tomic, 1998).
The adverse effects of cheap fertilizer were further
exacerbated by cheap credit. In the Philippines, during the
1966 70 period, an annual average of 349.5 m pesos
(US$6.72) was granted to rice producers. The Masagana 99
program in the Philippines and the BIMAS program in
Indonesia provided cheap credit to farmers. Similar
examples are found in Sri Lanka, and Bangladesh (Herath
and Jayasuriya, 1996). The Brazilian government encour-
aged massive private investment in expanding beef cattle
production in fragile ecological conditions in the Brazilian
Amazon supported by the tax concessions. Some Brazilian
corporations have been allowed to take up to 50% credit
against their federal income tax liabilities under certain
conditions and subsidized credit lines for cattle ranching.
(Warford and Partow, 1990). Livestock projects in Brazil
supported by the government have been the single most
important source of deforestation.
In case of crop failure, loans were drastically reduced or
written off. In Sri Lanka there were 28,000 cases pending
with the Agrarian Commissioner since 1989 which were not
being adjudicated and these loans have been written off
several times on the eve of an election (Herath and
Jayasuriya, 1996). Reluctance to take legal action against
defaulters and the writing off of debt on the eve of an
election highlight the political nature of these programs.
Input subsidies have been a major cause of inefficient use of
inputs and a shift of cropping systems toward water and
fertilizer intensive crops contributing to soil erosion
 J. Ananda, G. Herath / Journal of Environmental Management 68 (2003) 343353
problems. Some of the policies deepened poverty and
exacerbated the adverse impact on the environment.
3.1.2. Food pricing policies
Lower food prices were adopted because of consumer
pressure, poverty and malnutrition in developing countries.
Lower domestic food prices are distortionary and can have
two effects. Low food prices penalize producers, reduce
production and hence reduce the magnitude of the erosion
problem. However, lower food prices lower net returns,
which may create disincentives for producers to adopt soil
conservation technologies. Lower output prices may
encourage subsistence farmers to increase resource exploi-
tation, which can increase erosion. Development of the
Sahelo-Sudanian and Sudanian climatic zones, and the
humid tropical Africa have stalled because of low farm gate
prices and farmers opt for extensive production in fragile
lands (Southgate et al., 1990).
Policies such as import controls and high prices can also
enhance soil erosion. In Indonesia, the higher prices
encourage farmers to grow vegetables in steeply sloped
volcanic rocks (Barbier, 1990). In Mexico, price distortions
in favour of maize, a very land intensive crop increased
deforestation (Deininger and Minten, 1999). Further, global
food policies such as food subsidies in the United States and
the European Union and food aid lower international food
prices. The extent, to which these are transmitted into
domestic food prices and international policies, can have an
impact on soil erosion.
3.1.3. Inefficient pricing of water
Inefficient pricing of water can lead to excessive water
use and soil erosion. Many farmers in developing countries
pay a minimum charge for irrigation, which do not reflect
the demand patterns that exist. With a flat fee, the marginal
cost of additional water is zero, which is the worst form of
pricing. Obviously, water users have very little incentive to
change their water use patterns.
Poor water pricing led to poor cost recovery. In
Bangladesh, Philippines, Pakistan and Indonesia irrigation
user fees are 10 90% less than the cost of operation and
maintenance. The cost to the farmers of irrigation water is
extremely low, varying between 5 and 15% of the canals
operating cost (Sampath, 1992). In Vietnam, the percentage
of water fees collected is only about 50% of the expected
revenue (Chien, 2001). These budgetary problems led to
poor maintenance and quick deterioration of existing
irrigation infrastructure, which exacerbated the soil erosion
problem.
Market intervention and government policies in irriga-
tion created other adverse effects. Wade (1982) found that
irrigation engineers in India raise vast amounts of illicit
revenue from the distribution of water and redistribute part
of this with their superior officers and politicians. Govern-
ment policies in irrigation in Sri Lanka resulted in abuse,
theft of water and even bribing of officers by better off
347
farmers (Herath, 2001). Jodha (1990) found that in 82
villages in Rajastan, only 16% obliged to maintain and
repair irrigation infrastructure. Bardhan (2000) found that
the water user associations in canal irrigation set up by the
bureaucracy ended up as fundraisers rather than efficient
distributors of irrigation water. Conflicts and misunder-
standings were common in the Muda irrigation project in
Malaysia (Johnson, 2000). Government policies did not
achieve the productivity gains expected and water saving
was not satisfactory. There has been significant overuse of
water and a reduction in rice yields (Johnson, 2000). The
productivity of land did not increase as expected due to
irrigation and the negative consequences such as erosion,
salinisation, water logging and submergence of forests have
been widespread (Vaidyanathan, 1999).
3.1.4. Incentives for adoption of soil conservation measures
Many developing country governments provided direct
assistance to farmers to adopt soil conservation measures.
The results of these programs are disappointing. Lapar and
Pandey (1999) examined the adoption of hedgerows by
upland farmers in the Philippines. They found that high
costs of establishment and maintenance and the loss of land
to hedgerows are the major constraints to adoption. In Sri
Lanka, soil erosion control programs supported by govern-
ment subsidies are available for tea, rubber and coconuts.
However, the performance of these subsidy programs is not
satisfactory due to high transactions cost and inadequacy of
the subsidy to cover costs (Ariyabandu, 1994). Shively
(1997, 1999) found that in the Philippines non-adoption of
soil conservation measures is due to consumption risk and
other socio-economic characteristics. Evidence shows that
conservation investment in semi-arid India is affected by
factor-market imperfections including credit (Pender and
Kerr, 1998).
Subsidies are provided for bench terracing in the upper
watershed areas in Java of up to 50% slope along with
technical information to shift to high value crops. Nearly
87% of the poorer farmers could not adopt terracing due to
lack of money and rural credit in upland areas (Barbier,
1990). The richer farmers adopted commercial apple
production (profits of $3000 6000 per year) and also
back sloping tied ridges reducing erosion to less than 10 t/ha
(Carson, 1987). The erodibility and profitability of different
farming systems determine whether upland farmers adopt
the soil conservation strategy. The input output prices,
discount rate, soil characteristics, population, off-farm
employment, poverty and lack of appropriate technologies
affect adoption of erosion control investments. They also
found that where poverty is widespread and support policies
are lacking, adoption of erosion control measures is low.
A survey carried out in the Rio Ovejas watershed,
Colombia showed that long-standing effort to promote soil
conservation practices with credit and technical assistance
has made little headway (Ashby et al., 1996). Shirferaw and
Holden (1999) showed that perception of the threat of soil
348 J. Ananda, G. Herath / Journal of Environmental Management 68 (2003) 343353
erosion and land and farm characteristics determine
adoption of soil erosion control measures in the Ethiopian
highlands.
Regulations have been introduced to control erosion,
such as banning cultivation in hilly land, but farmers violate
most of these regulations. In Kenya, the law forbids
cultivation of land with a slope higher than 35% but this
is widely violated. Thomson and Pretty (1996) state In
Kenya, inadequacies of technology packages, information,
and land ownership rights and inconsistent implementation
have been identified as causes for low adoption of soil
conservation measures.
Fujisaka (1993) and Thampapillai and Anderson (1994)
show that the incompatibility of the erosion control
technology with the socio-economic characteristics of
farmers constrain adoption of soil conservation measures.
Also the lack of appropriate technology has been advanced
as a reason for the failure to adopt some of the costly
engineering approaches. In Indonesia, agro-forestry and
forestry have shown very good results in obtaining less
erosion at lower costs (Kusmandari and Mitchell, 1997). On
slopes higher than 45 50%, agro-forestry systems are
encouraged to replace annual cropping, fuel wood and
fodder. However, for poor upland farmers, living on small
parcels of land, the waiting period of three or more years in
agro-forestry is too long. Security of tenure also affects
agro-forestry because if long-term security of tenure is not
available they will not plant such long-term crops. Lower
private incentives to internalize the intertemporal land
degradation externality may require different form of public
intervention (Shirferaw and Holden, 1999).
Part of the blame for excessive encroachment must be
assigned to low investment in the scientific base under-
pinning agriculture in the Amazon region. Crop and
livestock yields in Amazonia are low which means that
growing demands for agricultural commodities tend to be
satisfied through shifts in agricultures extensive margin
(Southgate et al., 1990). Technological research have had
limited success in increasing the adoption of soil erosion
control technologies in the uplands in Asia.
4. Potential of economic and institutional approaches
to control soil erosion
It is argued that removal of price distortions in the form
of input subsidies, price support etc. would be a major step
toward halting soil erosion and land degradation. Such an
approach would encourage higher productivity growth by
freeing up resources for high priority investments and
diversification with less erosive crops. Theoretically, the
market can be used to manage the erosion problem because
these instruments can be flexible and responsive to changing
technology and market conditions. Also government inter-
vention has destabilised the capacity of rural institutions to
self-govern and act collectively, a clear case of institutional
failure. Both economic instruments and strong institutions
have the potential to improve the performance of past
policies. The sections below evaluate the markets and
institutions, their potential and shortcomings in controlling
soil erosion.
4.1. Market approaches
Portney (2000) states that incentives-based approaches to
environmental protection will become more important.
Market-based approaches depend on incentives and the
command and control (CAC) methods require mandatory
regulation. The main advantage of market-based approaches
is that they are economically efficient. Liberalisation of the
market, removing price distortions, Pigouvian taxes, trade-
able permits etc come under market-based approaches.
4.2. Pigouvian taxes
Economists have concluded that excessive erosion
occurs because private and social costs diverge and there
is no mechanism to force users to consider the effects of soil
erosion on others. Thus private profit maximising economic
decisions of farmers lead to outcomes that are detrimental to
society as a whole. Where such externalities occur
government intervention can often lead to more socially
desirable outcomes. Pigouvian taxes remain one of the
standard answers to reduce soil erosion (negative external-
ities). Economists advocate a tax on each unit of soil lost
(where the tax equals the marginal social damage due to
erosion). The tax is attached directly to the soil sediment.
With a tax on soil sediments, farmers will equate marginal
abatement cost of sediment reduction to the tax. A tax
lowers the net receipts to the farmer and thus discourages
production. Farmers may shift to land uses with higher
returns per hectare. Alternatively, a tax can be applied to an
input such as the extent of land cultivated or the amount of
fertilizer used. A tax on fertilizer may cause a shift to
technologies with higher returns to a unit of fertilizer. A tax
can be applied to unit of agricultural output produced. A
subsidy can also be used to reduce soil erosion. Here we
subsidise an activity that reduces soil erosion.
Taxes and subsidies rely on the market mechanism,
which is more efficient and lowers overall compliance costs.
However, when a tax is imposed on the input or output
where the pollutant cannot be easily monitored, it gives rise
to the second best problem. Also in the long run, there are
important asymmetries in taxes and subsidies for entry and
exit decisions of farmers. A subsidy can in certain instances
increase the levels of soil erosion (Cropper and Oates,
1992). The other problem in using taxes is that there is
considerable uncertainty with respect to the incidence and
damages and the difficulty of identifying sources of soil
erosion (Wills, 1987). Non-point sources cannot be
monitored with accuracy and at low cost. In developing
countries, there are thousands of farmers and their
 J. Ananda, G. Herath / Journal of Environmental Management 68 (2003) 343353
innumerable interactions prevent the calculation of mar-
ginal damages and the derivation of Pigouvian taxes.
Further, soil erosion is inherently stochastic and taxes are
not likely to be an effective instrument to control soil
erosion.
Some examples of the use of market incentives have been
reported in the Asia Pacific region however. In the Peoples
Republic of China, the pollution levies increase by 1% each
day the payment is delayed. Indonesian authorities in 1989
revoked 48 logging concessions and suspended 237 others
while fines totaling up to $4 million were issued for
breaking harvest rules. In 1986 87, 22 logging concessions
were cancelled and 29 others revoked in the Philippines,
while 40 sawmills were closed down for processing illegally
cut logs (World Bank, 1989). However, whether markets
will provide the necessary incentives remains an open
question because in most developing countries the insti-
tutions are weak and the rule of law is not applied
uniformly. Many governments have failed to perform their
institutional function as credible regulators to uphold the
rule of law.
4.3. Tradeable permits
Tradeable permits require less information than other
methods such as taxes.1 Here, transferable quotas are
distributed to individuals, the total amount being equal to
the allowable limit of pollution (Bertram, 1992). The
main advantage here is that those, whose erosion costs
are less will be able to sell off permits and use part of
the proceeds to erosion reduction. Tradeable permits can
also lower compliance costs (Cropper and Oates, 1992).
In the US, tradeable permits for reducing phosphorus are
used in the Dillon Reservoir in Colorado (Cropper and
Oates, 1992). Australias experience in using tradeable
permits for phosphorus reduction is limited to some pilot
studies done in the Belubula River and the Nepean
Hawkesbury River catchment. The potential of this
approach for soil erosion in the developing countries
remains untested.
4.4. Efficient water pricing
Poor water pricing can lead to excessive use of water
and enhanced soil erosion. Economising on water use can
reduce soil erosion (Rosegrant and Binswanger, 1994).
Water problems have now become very critical in
developing countries. Well-defined and enforceable
property rights and prices that reflect the full economic
costs of water are essential for the efficient operation of
the water market. Increasing scarcity has encouraged
governments to transform water property rights through
1
The other advantages of tradeable permits are that they create a market
for pollution, provide least cost control, provide automatic adjustment and
ensure the attainment of optimal pollution.
349
various measures. It may be argued that irrigation water
is a private good and hence should be gradually handed
over to the private markets. Water markets are not
widespread because of the high cost of obtaining
information and monitoring and enforcing rules (Rose-
grant and Binswanger, 1994). The transactions costs are
high because of the scattered nature of water across the
country. Measurement and enforcement are costly.
Further, asymmetric information contributes to opportu-
nistic behaviour, which can increase enforcement costs.
Strong institutions are required for better water manage-
ment but past policies ignored the relevance of
institutions to the success of water markets.
Several instances where water markets have worked well
(although limited) have been reported. In Nepal, volumetric
charges are used in a communal system where water shares
are allocated in proportion to their participation to construct
the system. This has led to efficiency improvements (Ghate,
1987). In the Peoples Republic of China, volumetric
Schemes also exist and these are being gradually increased.
In India, market instruments are used to address dysfunc-
tional water pumps. In Northeast Thailand, full cost
recovery was implemented for hand pumps after subsidized
Schemes failed, with 50% of the system not working after
five years.
4.5. Institutional approaches to soil erosion control
For many rural communities existing markets do not give
them the incentive to engage in wider trade. This is because
institutions that transmit information, enforce property
rights and contracts, manage the degree of competition
and provide the incentives to promote market transactions
are either absent or weak (World Development Report,
2002). Institutions thus affect the distribution of incomes
and efficiency of market transactions. Further they should be
innovative and match local conditions (World Development
Report, 2002).
According to New Institutional Economics, developing
country markets have asymmetric information and decision
makers are boundedly rational (Williamson, 1985).
Bounded rationality implies that decision makers ability
to process all available information is limited. Such
situations lead to opportunistic behaviour i.e. some
members of society will try to unfairly acquire for
themselves more benefits from a transaction. Institutions
evolve in order to economise on bounded rationality and
minimise opportunistic behaviour. Strong institutions can
minimise opportunistic behaviour but often developing
countries have weak institutions. Hence efforts to minimise
soil erosion has resulted in imperfect enforcement, corrup-
tion and exacerbation of inequities. Governments need to
strengthen institutions to provide an environment for market
agents to behave efficiently. Some of the main institutions in
developing countries and their role in mitigating soil erosion
are discussed in Sections 4.6 and 4.7.
350 J. Ananda, G. Herath / Journal of Environmental Management 68 (2003) 343353
4.6. Property rights
Poorly defined and/or absence of property rights to most
agricultural land in developing countries is a significant
problem. The absence of an efficient set of property rights to
water and land resources can cause both on-site as well as
off-site erosion. Coase (1960) argued that if property rights
to land are clearly specified, bargaining and trading will
occur amongst the property owners and a Pareto optimal
solution with the optimal level of erosion will be achieved.2
The central argument is that property rights affect the
management of natural resources by creating different
incentive structures. Insecure land tenure and property
rights in developing countries weaken farmers investment
incentives in the land, specially long-term land saving
investments. The problem in the case of soil erosion is that
even if property rights are defined for land and water, it may
not lead to efficient bargaining due to large transactions
costs. The number of farmers and victims are so large that
the two groups often overlap significantly. Thus, direct
negotiations among the farmers and victims to specify and
monitor contracts are too complex and the transactions costs
will be high.
In the semi-arid Sahel, some property arrangements
discourage intensification and conservation. Under commu-
nal tenure in the Sahel, a family is entitled for temporary
tenure. Planting tree crops and other permanent crops is
discouraged by the government. This is an institutional
constraint for deforestation (Southgate et al., 1990). Li et al.
(1998) state that land tenure rights in China and associated
property rights affect production behaviour. Governments in
Tropical Africa failed to offer legal title for protecting
communal land rights. Common properties are converted to
government lands and private property rights but govern-
ment capacity to manage and the legal infrastructure are
poor. Unless viable institutional arrangements are provided
there is no incentive for the forests and the soil to be
conserved (Southgate et al., 1990). In the Amazonian Basin
inappropriate tenure conditions led to excessive land
clearing due to lack of capacity of the public sector to its
properties.
Also soil erosion can generate a multitude of off-site
damages for different types of water users such as
recreational, domestic and industrial water users. Separating
these external effects from one another and assigning
weights and monitoring are technically difficult due to
measurement problems when sediment is transported from
one location to another (Cox et al., 2002; Southgate and
Macke, 1989). Many economists now question whether
Coasian efficiency levels are practically achievable at all.
2
The Coase theorem is valid only when the transactions costs are zero
and that there are no income effects. The large number of negotiators will
create high transactions costs. If the income elasticity of demand differed
between the two parties to the negotiations, the pattern of demand, and
hence the equilibrium price and quantity would differ under alternative
assignment of rights.
They contend that even though Pareto optimality is a good
concept, the difficulties of using such an approach in an
actual setting makes it only a theoretical nicety. Cropper and
Oates (1992) state that a Nash equilibrium instead is, for
most environmental problems, a practically achievable
goal.3
4.7. Social capital
Social capital is defined as the social connections and the
attendant norms and trust and reciprocity that enable
participants to act together more effectively to pursue
shared objectives. It facilitates collective action. Many poor
societies have few resources other than their capacity for
collective action (Putnam, 1993). Most small holder farmers
in Asia, Africa and Latin America have no legal title
defining private property rights but have longstanding rights
to the communal land. The social capital embodied in
communal land is robust enough to ensure their sustainable
use. Common property resources such as water, forests and
land provide security to users brought about by collective
action (social capital) which is often ignored. Deininger and
Minten (1999) found no evidence that communal land leads
to increase in deforestation in Mexico. A wide array of
institutions has arisen to provide security and create
conditions for collective action.
The importance of social capital is accepted but attempts
to create social capital through government intervention
have not succeeded (Fox and Gershman, 2000). In parts of
India, it is the decline of the traditional market-based
approaches due to social and institutional changes such as
land privatization and new panchayat systems that
undermined communal property rights and control of
community lands (Jodha, 1990). New institutions for
irrigation such as farmer organisations have been tried in
Pakistan, Sri Lanka, Indonesia and several other countries.
These in general have not worked well (Samad, 2001). In
Nigeria traditional forest resources management systems
have decision making processes, rules and regulations on
resource use, and patterns of resource ownership as well as
in-built social regulatory mechanisms about the use of
resources. In recent times such institutions are increasingly
unable to exert sufficient control over the exploitation of
the forest resources. Sanctions for the abuse and misuse of
forest resources are not as effective as they were
three decades ago. Community members disregard tra-
ditional laws and customs in the process of forest manage-
ment (Ite, 1997). Thus the efforts of governments to make
these farmers more market oriented has had limited
success.
3
In a Nash equilibrium, each producing firm is assumed to rationally
think through the consequences of its choices, in the knowledge that the
other firm knows the situation and is also rationally thinking things through.
The outputs that the firms produce are then taken to be the Nash
equilibrium. Nash equilibrium is not necessarily Pareto optimal.
 J. Ananda, G. Herath / Journal of Environmental Management 68 (2003) 343353
Governments should only facilitate the emergence of
social capital. For example, in Gal Oya, Sri Lanka, irrigation
associations of 15 25 farmers have been set up to help
decide how the revenue collected from irrigation fees is to
be spent. Not surprisingly, revenue collected for irrigation
fees has risen to 80%, the highest in the country (Uphoff and
Wijayaratna, 2000). In the Philippines, womens coopera-
tives manage communal irrigation water pipes and collect
the fees to pay for metered supplies. In Japan, irrigation is
controlled by local cooperatives known as Land Improve-
ment Districts where farmers pay about 32,540 yen per
hectare. for operation and maintenance of the system
(Nakashima, 1998).
5. Concluding comments and policy implications
Review of the soil erosion problem in developing
countries reveals that a dynamic view of the problem is
necessary to ensure that the important elements of the
problem are understood for any remedial measures to be
undertaken. The extent of soil erosion depends on the
complex interaction of a number of factors such as the
resilience of the natural resource base, the institutional
conditions, rate of population growth and the policy
environment. Many tropical and sub-tropical regions of
the world have fragile soils. Poor farmers in these countries
are compelled to use erosive methods and the soil is eroded
with continued use. This environmental dynamics can
however be arrested through institutions such as clearly
defined and enforceable property rights and appropriate
policies. Transition to private property rights will provide
the institutional structure that will create incentives to adopt
soil conservation. It should be noted however, that private
property rights are not the only property rights that help
arrest soil erosion. Common property resources are used
sustainably by farmers through collective action and social
capital. The implication is that these systems need to be
supported by governments by providing adequate legal
recognition and facilitating the definition of legal communal
rights over common property rights. The policies should
emphasize support and improvement of community insti-
tutions that permit the most efficient utilization of the
environmental resources. This would encourage popular
participation where the role of the government is limited to
observer, facilitator or regulator.
The policy environment has in the past encouraged
unsustainable use of land. In many regions, government
policies such as provision of credit facilities, subsidies, price
support for certain crops such as potatoes in the highlands of
Asia, subsidies for erosion control, tariff protection all have
exacerbated the erosion problem. Market-based approaches
to water allocation may shift water use towards less water
intensive crops and reduce soil erosion. Policies to facilitate
the development of an efficient marketing system may
encourage switch from low value crops to high value crops
351
and improve returns on investment to soil conservation
measures. There is a need to have more market-based policies
in these areas so that resources will be allocated more
efficiently. The market distortions need to be eliminated for
institutional dynamics to counteract environmental
dynamics. Market incentives may not work in the absence
of appropriate institutions. Strong institutions that would
uphold the rule of law and structure of governance supporting
market approaches are essential. Such institutions lower
transaction costs and facilitate market exchange.
However, in some tropical and sub-tropical areas with
highly fragile soils, mechanisms to slow down environ-
mental dynamics through provision of extension support,
infrastructure, credit and subsidy assistance may still be
needed. In these areas, the poor predominate and land users
may not have the resources to invest on erosion conserva-
tion mechanisms without external support. Thus support
policies must be applied selectively and not uniformly as
has been done in the past. Targeting subsidies to farmers in
areas where soil erosion is very severe is futile. In such
cases, incentives to retire land may provide better dividends
in the long-run.
Technological approaches to control soil erosion have
often been promoted to the exclusion of other effective
approaches. However, adoption of conservation measures
and returns to conservation depend on the specific agro-
ecological conditions, the technologies used and the prices
of inputs and outputs produced. A full examination of the
role of government policy in conservation needs to consider
the off-site effects and distortions observed in price signals
resulting government policies and marker failures. Sub-
sidies often cause perverse incentives. The soil conservation
methods have mostly been of physical structures and more
research is needed to find ways of using other approaches
such as extension, education, etc. Hence institutional and
policy reforms as well as technologies that not only reduce
soil erosion but increase farmers incomes are needed. It is
necessary to emphasise that greater understanding of the
dynamics of land use changes in-situ is essential in
designing technological, institutional and policy interven-
tion to minimise the soil erosion problem.
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