Center for Effective Global Action

Poverty and altered planning horizons brought on by the HIV/AIDS epidemic can change individual discount rates, altering incentives to conserve natural resources. Using longitudinal data from household surveys in western Kenya, we estimate impacts of health status on labor productivity and discount rates. We find that household size and composition are predictors of whether the effect on productivity dominates the discount rate effect, or vice-versa. Since households with more and younger members are better able to reallocate labor to cope with productivity shocks, the discount rate impact dominates for these households and health improvements lead to greater levels of conservation. In smaller families with less substitutable labor, the productivity impact dominates and health improvements lead to greater environmental degradation.