An Analysis of externalities in agroforestry systems in the presence of land degradation

Agroforestry can help prevent land degradation while allowing continuing use of land to produce crops and livestock on a sustainable basis. Despite the recognition that trees may have a high environmental value at the local level and the attention agroforestry has received as a tool for sustainable agricultural development, there is a lack of formal economic analyses on the role of agroforestry; this need is addressed in this study. A general economic analysis of an agroforestry operation on land prone to degradation and in the presence of positive forest externalities is developed. A numerical application is presented, based on a biophysical model of a watershed. The model is used to assess the value of forest externalities and the marginal cost of land degradation. The potential cost of incentives required to achieve a given target level of land productivity is estimated. The technique illustrated in this paper could be used to provide cost estimates that would serve as a basis for initial negotiations between stakeholders in a watershed wishing to establish a common-property approach to land management.