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

André Chagas and Luiza Cardoso de Andrade ()

No 2014_12, Working Papers, Department of Economics from University of São Paulo (FEA-USP)

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

Keywords: Environmental preservation; climate change; land use; Brazilian Legal Amazon; deforestation (search for similar items in EconPapers)
JEL-codes: Q51 Q56 R14 (search for similar items in EconPapers)
Date: 2014-07-31
New Economics Papers: this item is included in nep-agr, nep-env and nep-lam
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