Linking Economic Policy and Environmental Outcomes at a ...

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102PHILIPPINE JOURNAL OF DEVELOPMENTimportant agricultural externalities in the developing world(Anderson and Thampapillai 1990; World Bank 1992). Suspendedsolids and transported nutrients and agricultural chemicals reducethe quality of drinking water (Munasinghe 1992). Siltation ofstreams increases the risks of flash floods (UNESCO 1982). Accumulationof silt reduces the productivity of aquatic ecosystems(OECD 1993) and accumulation of sediment in reservoirs reduceshydroelectric capacity and equipment life (Naiman 1995). Of additionalconcern is that erosion from upland farming creates sedimentin downstream irrigation systems, reducing both their productivityand expected life (e.g., Cruz et al. 1988; DuBois 1990).This is especially important in light of evidence that a lack of reliablewater supply precludes expansion and intensification of agriculturein many low-income areas of Asia (Myers 1988; Svendsonand Rosegrant 1994). Estimates from the Philippines suggest 74-81 million tons of soil is lost annually, and 63-77 percent of thecountry’s total land area is affected by erosion (FMB 1998). Sedimentationhas reduced the storage capacity of almost all of thePhilippines’ major reservoirs, and has measurably affected domesticwater consumption, power generation, and irrigation. Over thelast 25 years, the dry season irrigated area has fallen by 20-30 percentin several of the country’s key irrigation systems (FMB 1998).Although the biophysical links between upland farms and downstreamwater users are well documented (e.g., Dixon and Easter1986), policies to promote sustainable upland farming remain elusive.In most tropical watersheds, rates of land degradation dependupon the decisions made by upland farmers. These decisions,in turn, are influenced by the interplay of wages, prices, andeconomic opportunities in the general economy (Coxhead 1997;Shively 1998; Coxhead et al. 2002). To varying degrees circumscribedby resource constraints, personal goals, and societal norms, farmersrespond in predictable ways to policy changes instituted at thelocal and national levels. But the ongoing process of economic decentralizationand political devolution places pressure on local and
SHIVELY & ZELEK : Policy & Environment Link 103national policymakers to define and articulate their spheres of influenceand responsibility. This evolution in policymaking raisesquestions about the appropriate point of entry for policymakers.In this paper, we use results from a simulation model ofeconomy-environment linkages to study and compare some stylizedpolicy options available to local and national policymakers forwhom watershed protection is a goal. Our empirical focus is theManupali watershed in the Philippines. Our results are based on amodeling strategy that captures, in a very basic way, the interrelationshipsof biological and economic phenomena. We investigateboth the budgetary and human welfare implications of changes inland use induced by a range of policy instruments.Our approach constitutes a somewhat unique methodologicalcontribution to the field of watershed modeling. The standardapproach to watershed modeling focuses on detailed developmentof hydrological and biophysical details, often at the expense of thecharacterization of the behavior of economic agents in the model.In contrast, we present in this paper a model that takes as its unit ofanalysis the farm household, and presents agents in a way that isconsistent with economic theory. We assume optimizing behavioron the part of farmers and rational behavioral responses to policychanges. We model environmental externalities as outcomes of optimizingbehavior and provide indicators of the economic and environmentaloutcomes associated with patterns of land use and policychanges.FRAMEWORK, DATA AND STUDY SITEIn this section, we provide a brief overview of the modelused in the analysis. Additional details regarding the modelcan be found in Shively (2001). 1 In the Appendix, we presentthe mathematical structure of the model, which relates economicincentives to decisions and outcomes on representative farms.1See http://www.agecon.purdue.edu/staff/shively/manupali. Shively and Coxhead (forthcoming)also report results based on the model.
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