Information Cascades and Indonesia’s Slash and Burn Problem
In the article linked above, Chew Soon Beng and Daniel Ong Qi Ming apply economic theory to explain the problematic slash and burn activity which plagues Indonesia today. According to these authors, the slash and burn farming technique has resulted in copious amounts of forest fires in Indonesia. This has particular consequences for the air quality of Indonesia, as well as its neighboring countries. Therefore, with no solution in sight, the authors dedicate this article to discuss the reasons why this farming technique is so popular in the first place.
First, they describe two attractive features of slash and burn which add to the technique’s allure: first is cost. Compared to using machines and chemicals, using fire to clear land is significantly cheaper (a price differential of $195 USD/ hectare of land). Second, burnt land tends to be more fertile since ash can act as a fertilizer to help nourish future crops. Past these reasons, the authors also argue that the larger driver of this farming technique’s prolific spread in Indonesia boils down to individuals responding to each other’s behavior and influencing one another. More specifically, they explain how if just 15% of farmers utilize slash and burn, their market share would allow them to lower crop prices. In turn, farmers who do not also adopt slash and burn techniques would be pushed out of business by high costs and low returns.
Broadly speaking, in lecture we learned about how different situations where individuals would copy others’ decisions based on whether or not a threshold is met. Very much this example of slash and burn’s prominence in Indonesia represents a real life example of these theories. I particularly find this example to be interesting because it not only presents a threshold (that being 15% of farmers partaking in slash and burn techniques), but also it explains the business and market reasoning behind why this threshold exists. The article also presents how an economic analysis of the problem can result in an actionable solution: the authors extend their economic analysis to make a recommendation for the Indonesian government, who is trying to crack down on this pernicious phenomenon: they must pursue the initial users of slash and burn before the cascade effect is sparked. However, I am curious to learn more about how the authors determined that percentage as the threshold, because that is what I find to be the more difficult question to answer in regards to information cascades. Unfortunately, they do not explain their methodology in depth in this article.