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Integrated watershed management has been promoted as a suitable strategy for improving productivity and sustainable intensification of agriculture in rainfed drought-prone regions. The paper examines the socioeconomic and biophysical factors influencing farmers' soil and water conservation investment decisions and the resulting economic incentives (productivity benefits) from watershed management interventions in the semi-arid tropics of India. The paper develops a theoretical framework to test hypotheses and to explore (a) the interlinkages between land productivity, soil quality, input use and conservation investments, and (b) the influence of local market imperfections on production and conservation decisions. These relationships are analyzed using plot-level data in six semi-arid villages. A systems approach (3SLS) is used for the joint estimation of structural equations related to land productivity, input use, resource investments and land values. The results show that after controlling for input use and germplasm technologies, soil quality and access to supplemental irrigation significantly affect the productivity of land. Off-farm income is negatively associated with resource investments and land productivity. The watershed program seems to have a greater impact on dryland crops (cereals and pulses) than on other crop not supported by the project. A plot-wise analysis found some degree of substitution between private and public investments in land and water management. Differential effects of family labor on the decision to invest in agriculture revealed that male labor plays a key role in this decision while female workers significantly influence the level of labor use in production and resource conservation. This indicates that labor market imperfections, especially for female labor, are most likely to affect production and conservation investment.
