Agroforestry and Biodiversity Conservation in Tropical Landscapes

flow. The downstream benefits of upstream soil conservation may have a cash
flow associated with them, such as the value of a commercial fishery that is
protected. But the cash flow does not accrue to the farmer protecting the soil.
It therefore remains an externality. The biodiversity benefits accruing to the
world as a whole are unlikely to be associated with cash flows. They might
accrue via ecological tourism expenditures, for example. But if people in the
United States or Europe value biodiversity in Asia, then that is an economic
benefit even though no cash flow is involved. The important distinction, then,
is between marketed and nonmarketed benefits (and costs).
The formal model for deciding which land use is best from an economic
standpoint can be set out as follows:

Social benefits = Private benefits + External benefits

Social costs = Private costs + External costs

External benefits and costs may be national or global (rest of world). All
costs and benefits accrue over some period of time so that private benefits in
a given period, t, are BP,t. Similarly, private costs in period tare CP,t. Using the
subscripts Efor external and Pfor private, we can write

[BP,t+ BE,t– CP,t– CE,t] > 0

as the condition for any land use to be worthwhile and

[BAP,t+ BAE,t– CAP,t– CAE,t] > [BiP,t+ BiE,t– CiP,t– CiE,t]

as the condition for agroforestry (subscript A) to be chosen over any alterna-
tive land use system (subscript i). In turn, BEand CEcan be divided into
national and global. The distinction is not pursued here but it is relevant to
the issue of how to design incentives so that farmers take account of external
benefits and costs in their decisions.
The obvious problem with this formal equation is that it does not incor-
porate time. With time included, the requirement that the net social returns
from agroforestry (the left-hand side of the preceding inequality) be greater
than the net social returns from any alternative land use becomes

∑t

BA,t– CA,t>

∑t

Bi,t– Ci,t.

Here trefers to time, Bconflates both private and external benefits, and C
conflates both private and external costs. The new element is the discount factor:

(1 +

1

r)t

,

where ris the discount rate. Although farmers do not use the terminology of
discounting, the term accurately describes the mental process of attaching a
lower weight to future gains and losses compared with gains and losses today.
The discount factor is the weight that the farmer or society assigns to each

4. The Economic Valuation of Agroforestry’s Environmental Services 71

(1 + r)t (1 + r)t