Grain for Green program have found that the compensation rate typically is larger than the value of the
crop yielded by the retired plots (i.e., the opportunity cost of program participation) (Xu et al., 2006;
Uchida et al., 2004).9 The conservation set-aside program also can indirectly induce structural change in
household wealth by reducing the demand for labor for cultivating crops. How the freed-up labor time
gets reallocated critically depends on the other physical resources possessed by the household, the
household’s stock of human capital and preferences for utility for leisure. Postprogram resource
allocation also is influenced by the nature of labor and credit markets. In addition, the ultimate use to
which a participating family’s freed-up labor is reallocated can be expected to interact with the amount
of physical capital available to the household. Farmers could invest the compensation that they receive
into investments or activities that will aid them in switching from cultivating crops to other productive
activities, particularly off-farm endeavors. The costs associated with migration—and with funding the
investment needed to start a family-owned business—can be high for households living in poor,
mountainous areas. Farmers also may use the compensation to invest in higher-value crops and livestock
enterprises.
Data
We use a panel data set from household surveys that we designed and implemented in 2003 and
2005. The surveys were commissioned by China’s State Forest Administration as part of its effort to
evaluate the Grain for Grain program at the end of its third year of implementation. This data set is
believed to be the only existing panel data set that includes both participating and nonparticipating
households. The descriptive statistics for the key variables discussed here are shown in Table 1.