period, reflecting the greater importance attached to having net benefits now
rather than later. A discount rate of 10 percent, say, would be consistent with
valuing next year’s benefits at 91 percent of this year’s benefits, benefits in 10
years at 38 percent of today’s benefits, and so on. However, if the discount rate
is high—reflecting a strong concern to have benefits now, as would be consis-
tent with behavior in very poor societies—then future net benefits will be
given a very low weight. For example, a discount rate of 25 percent would
assign a weight of only 11 percent to net benefits in year 10. This is why many
poor farmers are not interested in soil conservation measures, which generate
long-term rather than short-term benefits (Cuesta et al. 1997; Poulos and
Whittington 2000). This is again relevant to agroforestry if the relevant prac-
tices hold out promise of long-term rather than short-term benefits.
Finding Total Economic Value
Efficient decisions should be based on what is good for society as a whole.
Therefore, it is the social rather than the private benefits and costs that mat-
ter, and it is these that should be used to determine the optimal configuration
of land uses. Nonetheless, it is easy to see why, even if social benefit analysis
produces the result that agroforestry is best, it may not become the chosen
land use. Private costs and benefits determine actual land uses. Social
appraisals provide a measure of how the land should be used, but if the farmer
is in a position of power over that specific land use, then the private costs and
benefits dictate the actual use. By powerhere we mean that institutions
designed to reflect the wider social concerns may not function in such a way
as to alter farmers’ decisions. This is especially true where monitoring and
policing of land use is weak, as is usually the case where the frontier is large
(e.g., Indonesia, Brazil) and where public resources are very limited (almost all
low-income developing counties). In such circumstances land use tends to fol-
low open access solutions (i.e., land is not owned by anyone in the sense of
property rights being enforced). The same point can be made differently.
Farmers ignore the external costs and benefits of their land use because they
do not receive any cash or resource flows corresponding to the nonmarket
flows of benefits and costs. For example, if farmers were paid to conserve bio-
diversity or to store carbon in trees rather than release it as carbon dioxide,
then they would change their revenue and cost flows to reflect the nonmarket
benefits.
This last result is critical. It is one thing to appraise land use options and
to declare that one use is socially better than another. It is quite another thing
to devise systems of incentives to capture the nonmarket costs and benefits in
such a way that they influence private land use decisions. This process of
designing incentives is a major focus of concern in environmental economics.
There are many examples. Hydroelectric companies may pay upstream forest
72 II. The Ecological Economics of Agroforestry