Does amazonian land use display market failure? An opportunity-cost approach to the analysis of amazonian environmental services

Abstract

The article discusses whether deforestation in the Amazonian region should be considered a typical case of market failure and computes the opportunity cost of economic activities that promote deforestation relative to uses that keep the forest intact. For environmental resources threatened by Amazon deforestation, forms of productive land use (“opportunity” uses) are considered in terms of the net benefit values of primary land-based activities. The accounting exercise conducted in this study calculates the net benefit per hectare obtained from the direct use value (DUV) for different land use alternatives (timber, non-timber, livestock and agriculture); the indirect use value (IUV) related to carbon storage; and the non-use value (NUV) (existence value). The results show that the opportunity cost of deforestation in 2009 was positive for the most common land use, livestock activity. Such findings indicate a market failure. Nonetheless, this is not the only possible outcome when considering alternative land uses.