Bibliographic information: Title Farm household behaviour and agricultural resource degradation: using econometric and simulation approaches for policy analysis Author(s) Kruseman, G. Source In: Development economics between markets and institutions Incentives for growth, food security and sustainable use of the environment / Bulte, Erwin, Ruben, Ruerd, Wageningen : Wageningen Academic Publishers, 2007 (Mansholt Publication Series 4) - ISBN 9789086860470 - p. 151 - 166. Farm household behaviour and agricultural resource degradation: using econometric and simulation approaches for policy analysis Gideon Kruseman Senior Research Fellow, LEI-Wageningen UR, PO Box 29703, 2502 LS The Hague, the Netherlands Abstract In this paper we discuss how the relation between household behaviour and agricultural resource degradation in developing countries can be analysed for adequately addressing policy questions in the field of sustainable agricultural resource management. Policy advice requires a consist and theoretically sound analytical framework that captures both behavioural and material system relations. Bio-economic programming models and econometric analysis represent two alternative approaches that devote attention to either of these aspects. We discuss examples for an econometric analysis of resource degradation in Kenya with a bio- economic model for Ethiopia to demonstrate the possibilities and constraints of both approaches. We argue that bio-economic models are especially useful to determine the effects of different policy instruments for environmental externalities, whereas econometric analysis provides better insight into the determinants of household behaviour. Keywords Econometric analysis, bio-economic modelling, institutions, resource degradation; agrarian policy; Ethiopia and Kenya. 1. Introduction The vast majority of poor people reside in rural areas in developing countries. A substantial part of these households are largely dependent on agriculture and thus their livelihood strategies rely on the use of natural resources (i.e. soil and water). These resources have come under pressure as a result of demographic growth, limited fertility maintenance and changing institutional arrangements that resulted in more restricted carrying capacities. Since the poorest people tend to reside in areas where the pressure on natural resources is highest, this poses a formidable challenge to policies aiming at sustainable development. Over the past decades there have been proposed a large range of possible technical, economic and institutional solutions, but their (usual partial) modes of implementation have not been