Integrated Assessment of Biodiversity and Agriculture

This paper develops a tractable integrated assessment model of the two-way interaction between biodiversity and the economy. To capture the main causes of biodiversity loss and the economic harm from it, we focus on agriculture and its expansion at the expense of forest land. We answer the question: What are the effects of pricing policies for land use on biodiversity and agricultural output? We show that there exist multiple economic-ecological equilibria and that a single ”bad” policy maker can cause virtually irreversible harm – a ratchet effect of land-use change. We further find that a brown paradox may emerge in which, in anticipation of a future lenient policy maker, farmers halt current land-use change. We characterize the optimal mix and level of land-clearing fines and land-use taxes. Fines only have the effect of slowing down land-use change but cannot be used to restore biodiversity. For that land-use taxes, or other policies such as restoration subsidies, are necessary.