and benefits. Society here need not be constrained to be the sum total of citi-
zens within a national border. To see why, consider the role agroforestry may
play in conserving watershed functions. Compared with tree removal, agro-
forestry tends to prevent forest soils from being washed into rivers. Because
sediment both settles and travels in water, it can quickly affect downstream
fisheries and other economic activities. Agroforestry therefore may generate
what are known as external benefits that accrue to others in society. The ben-
efit is external because the farmer does not receive any payment for this pro-
tective function. (As it happens, this institutional feature of protective land use
systems is beginning to change as downstream users better appreciate the ben-
efits they are receiving from upstream soil conservation practices.) This is a
simple example of how social benefits can be greater than private benefits. The
converse is that the social costs of destructive or damaging land use systems are
greater than the private costs. But social benefits and costs may not be con-
fined to the nation. If a land use system yields benefits in the form of biodi-
versity conservation, then those benefits may accrue not just to local people or
to the nation but to the world as a whole. That the world values biodiversity
is evidenced in the existence of treaties such as the Convention on Biological
Diversity. Therefore, social benefits may comprise national social benefits and
global social benefits.
In the economic analysis so far, nothing has been said about the ways in
which these costs and benefits can be valued nor whether they are associated
with actual cash flows. This brings us to the second complication of the sim-
ple rate of return argument outlined earlier. To the economist, cash flows do
not define a benefit or cost, contrary to widespread misunderstanding of the
point. An economic benefit is defined as any gain in human well-being. An
economic cost is any loss in well-being. In turn, well-being is defined with ref-
erence to human preferences. To say that my well-being is higher in context A
than in context B is to say that I prefer A to B. Economic appraisal therefore
is preference-based, reflecting the basic democratic value judgment that
human preferences should count. It is important to understand that prefer-
ences may have many different motivations.
A further major misunderstanding of economics is that preferences are
alleged to be based on self-interest, that is, on what the individual prefers for
himself or herself. This is incorrect. Preferences may reflect pure self-interest,
a concern for what an immediate family group wants, a concern for children,
grandchildren, and future generations generally, a concern for the environ-
ment in some intrinsic sense, and so on. Although there is a scientific debate
within economics about the precise ways in which these values can be aggre-
gated without double counting, the essential point is that an individual’s pref-
erence can have varying motivations. This turns out to be important, as we
shall see.
Thus, social costs and benefits may or may not be associated with a cash
70 II. The Ecological Economics of Agroforestry