Stanford Graduate School of Business
Conditional Incentives for Improving Smallholder Farmer Welfare and Protecting Tropical Forests
April 6, 2023 – 05:15 – 06:30 PM (CEST)
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Smallholder farmers, who play an essential role in global agricultural commodity production, often struggle with low incomes and limited productivity. To enlarge their farmlands and improve their incomes, these farmers may engage in tropical deforestation, a practice with significant environmental repercussions. To tackle these challenges, large multinational commodity buyers and governmental agencies have been increasingly making dual commitments to halt tropical deforestation while enhancing the livelihoods of smallholder farmers.
We examine the extent to which conditional incentives, comprising financial rewards combined with forest protection requirements, can help fulfill these dual commitments. We develop game theoretic models that encapsulate the crucial decisions made by smallholder farmer communities confronted with various types of conditional incentives. Our findings indicate that group-level conditional incentives are more effective than individual-level ones, and that the optimal choice of conditions or requirements is highly dependent on the priorities of the interested party and on field conditions. Utilizing data from the Indonesian palm oil supply chain, our study reveals that current price premiums might not be adequate to achieve the dual commitments uniformly across all regions. However, a modest carbon price could be sufficient, considering the considerable CO2 emissions that could be mitigated.
Dan Iancu is an Associate Professor of Operations, Information and Technology at the Stanford Graduate School of Business. A native of Romania, Prof. Iancu holds a B.S. degree in Electrical Engineering and Computer Science from Yale University, an S.M. in Engineering Sciences from Harvard University, and a Ph.D. in Operations Research from MIT. Prior to joining Stanford, he spent one year as a Goldstine Fellow in the Risk Analytics Group at the IBM T.J. Watson Research Center.
Prof. Iancu's research interests lie at the interface of operations, finance, and risk management. His work develops new tools for dynamic optimization under uncertainty and prescriptive analytics, and applies them to study operational and contracting problems in complex value chains. An area of particular focus in his recent work has been the design of better procurement, payment, and financing solutions in global supply chains, where material and financial flows carry both immediate and long-term impact on the lives of millions of people, and on the environment. His research has been published in Management Science, Operations Research, Manufacturing & Service Operations Management, and Mathematics of Operations Research, and he serves in the editorial board of several of these journals. He was the recipient of several best paper awards (INFORMS Optimization Society 2009, INFORMS JFIG 2013), and of teaching prizes at Harvard and MIT Sloan.
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