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Opportunity cost of environmental preservation: the case of the Brazilian Legal Amazon

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  • André Luis Squarize Chagas

  • Luiza Cardoso de Andrade

Abstract

Currently, the Brazilian Legal Amazon (BLA) represents the agricultural frontier of Brazil and concentrates the deforestation processes. A recurrent discussion involves what to do to reduce the deforestation process. A compensation to no-deforestation is a way to this, but involves an opportunity cost for agents in BLA, represented by the expected cash flow that these agents are expected to lose by not using the land for agricultural production in the future. The expectation formation process is uncertain, but the occupation in Brazil’s Midwest, a region near the BLA, in the 1970s can provide a proxy value. We use the stochastic frontiers method to compare both regions and conclude that the actual production mode in the BLA is very similar to that in the Midwest in the past. Thus, we take the production function estimate to project the future income flow for this region. The results show that producers in the BLA region can expect a 9% to 13% increase in average annual income over the next forty years, depending on the discount rate of the cash flow

Suggested Citation

  • André Luis Squarize Chagas & Luiza Cardoso de Andrade, 2014. "Opportunity cost of environmental preservation: the case of the Brazilian Legal Amazon," Working Papers, Department of Economics 2014_12, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2014wpecon12
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    1. Lykke E. Andersen, 2015. "A Cost-benefit Analysis of Deforestation in the Brazilian Amazon," Discussion Papers 0065, Instituto de Pesquisa Econômica Aplicada - IPEA.
    2. Celentano, Danielle & Sills, Erin & Sales, Marcio & Veríssimo, Adalberto, 2012. "Welfare Outcomes and the Advance of the Deforestation Frontier in the Brazilian Amazon," World Development, Elsevier, vol. 40(4), pages 850-864.
    3. Harrison, Ann E., 1994. "Productivity, imperfect competition and trade reform : Theory and evidence," Journal of International Economics, Elsevier, vol. 36(1-2), pages 53-73, February.
    4. Pinedo-Vasquez, Miguel & Zarin, Daniel & Jipp, Peter, 1992. "Economic returns from forest conversion in the Peruvian Amazon," Ecological Economics, Elsevier, vol. 6(2), pages 163-173, October.
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    JEL classification:

    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns

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