Spillover effects of market-based instruments under revenue uncertainty in Jambi Province, Indonesia

In the case study of Indonesia we investigated possible effects of different types of
market-based instruments (MBI), including rewards and taxes, on larger farmer
(landlord) that adopts MBI and spillovers on working on his land under
sharecropping arrangement another farmer (tenant). Multi-period expected value
model with Monte Carlo simulation and Brownian motion was used. Findings showed
that high prices of MBI would increase incomes of landlord but would reduce
incomes of tenant through reduced working activities at landlord due to less
cultivation of labor demanding crops. In most cases the incomes of landlord would be
the under the MBI scenarios than in the business-as-usual scenario. If uncertainty in
revenues is considered then MBI would reduce variability in incomes of both landlord
and tenant. Rewards for increasing supply rather than taxation for reducing provision
of ecosystem services resulted in higher rural incomes and provision of ecosystem
services.