This study conducted a crop-choice game to understand farmers’ farming decisions on arable land use and to analyze the kind of institutions (i.e., sanctioning versus leading-by-example) that might be effective to solve the externality problems emanating from rice-field conversion into oil palm plantations. The game also aimed to determine the extent to which spatial dimension influences farmers’ decisions. A total of 212 observations consisting of rice and oil palm farmers in two districts in Sumatera Utara province participated in the experiment. The results showed that the baseline scenario had the highest conversion rate (2.59), followed by the leading-by-example scenario (2.39), and then by the sanctioning scenario (1.78). This result indicates that institutional mechanism is required to solve the externality problems, and that sanctioning makes a more significant influence than leading-by-example in reducing the conversion rate. However, the conversion rates of the rice plots located at the center and at the borders did not significantly differ from one another in all scenarios. To prevent further externality problems in arable land use, we suggest establishing local institutions (i.e., informal rules agreed by farmers through sanctioning mechanism) and enhancing formal rules on land use through specifying spatial planning at the village and district levels.

Crop-Choice Games for Analyzing Externality Problems of Rice Field Conversion into Oil Palm Plantation in North Sumatera Province, Indonesia
Crop-Choice Games for Analyzing Externality Problems of Rice Field Conversion into Oil Palm Plantation in North Sumatera Province, Indonesia