The economics of cropland conversion in Amazonia: The importance of agricultural rent

We use spatially efficient logit models to explore the role of economic incentives on the expansion of cropland in the Mato Grosso region between 2001 and 2004. An empirical measure for agricultural economic rent is used to quantify the desirability of a particular plot of land, which previous research proxies with variables such as distance to roads or urban areas, and simple climatic and edaphic variables. Results indicate that the measure for economic rent provides additional information and explanatory power to one of the most commonly used proxies, distance to roads. As predicted by economic theory, it is not simply access or variation in transportation costs that drives the spatial determinants of agricultural expansion, but the expected total returns from the venture. This suggests that spatially explicit rent models can be used to simulate the location and quantity of land-use change in an economically consistent framework. Such a framework lays the foundation for an enhanced methodology that can evaluate the ability of fiscal policy levers to influence the location of agricultural conversion with the ultimate aim of balancing economic and environmental goals.