What a Terrible Thing to Waste: Providing a Market-based Alternative to Crop Residue Burning

Crop residue burning significantly contributes to air pollution in low- and middle-income countries (LMICs). This paper presents a causal estimate of the capital rental subsidy on crop residue burning. I involve 1,024 farmers in a field experiment with two arms: a control arm and a capital rental subsidy arm. Using high-resolution satellite imagery, the author finds that the capital rental subsidy reduces crop residue burning. The finding suggests that financial constraints rather than information constraints drive crop residue burning.

The effects are concentrated among farmers who faced high financial constraints, but not among those who faced information constraints at baseline. Crop residue burning also decreases among neighbors, indicating that green technology generates significant spillover effects within the village. The results suggest that the capital rental subsidy can be a cost-effective measure to address negative externalities, i.e., air pollution, in the agricultural sector.