Paper Number: 2010-12
Document Date: 10/2010
Author(s): R. David Simpson
Subject Area(s): Land Use; Sustainable Agriculture
JEL Classification: Renewable Resources and Conservation: Land; Environmental Economics: Ecological Economics: Ecosystem Services; Biodiversity Conservation; Bioeconomics; Industrial Ecology; General Regional Economics: Land Use Patterns
Keywords: ecosystem services; conventional agriculture; perfect substitutes; purchased inputs; subsidy
Abstract: There has been considerable recent interest in the idea that farms can produce both food and a variety of ecosystem services. One particularly intriguing notion is that farmers might find it in their own interest to adopt an “ecosystem services” approach to production in preference to a “conventional” approach. In the conventional approach farmers devote substantially all of their land directly to production and purchase a variety of fertilizers, pesticides, and other inputs. In contrast, if farmers preserve a substantial fraction of their land in a more-or-less “natural” condition, or restore it to such a state, the ecosystem services provided by preserved natural systems may obviate the purchase of many inputs. While private adoption of the ecosystem services approach would not result in the optimal provision of ecosystem services, given that some such services generate positive benefits on a broader scale than an individual farmer can appropriate, it is reasonable to regard the conversion of farms from a conventional to an ecosystem services approach to production as a step in the right direction toward more ecologically benign land use. In this paper I develop a simple and schematic model of land use in agriculture. I motivate the model by reference to Polyface Farm, a farm described in Michael Pollan’s 2006 bestseller The Omnivore’s Dilemma. Polyface Farm has adopted an ecosystem service approach: its owner restored more than fourth-fifths of the land he controls to a natural state. In contrast, his neighbors actively farm the great majority of their holdings. I develop a simple model that duplicates the stylized fact that farmers choose between very different production approaches. The model also predicts, however, that farmers who adopt an ecosystem services approach would reduce their production in the same proportion as they reduce the area of land they employ directly in production. This finding has an important implication for policy. While manipulation of agricultural prices or subsidies might induce some farmers to adopt an ecosystem services approach, such a strategy would be self-limiting. When one farmer adopts an ecosystem services approach in preference to the conventional approach she will reduce her output. Prices would rise in response, and the incentive for others to emulate her choice would be reduced.
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