The Economics of Desertification, Land Degradation, and Drought

The level of land degradation determines its outcomes or effects—whether on-site or offsite—on
the provision of ecosystem services and the benefits humans derive from those services. If
actions to halt or mitigate DLDD are taken, the actors involved in halting mitigation are determined
by the causes of land degradation that need to be addressed, by the level of land degradation, and by
its effects. Actors can then take action to control the causes of DLDD, its level, or its effects. Many of
the services provided by ecosystems are not traded in markets, so the different actors do not pay for
negative or positive effects on those ecosystems. The concept of externalities refers to the costs and
benefits arising from the production or consumption of goods and services for which no appropriate
compensation is paid (for example, off-site effects such as sedimentation and indirect effects such as
migration and food insecurity). The value of such externalities is not considered in the farmer’s land
use decision, which leads to an undervaluation of land and its provision of ecosystem services and, in
suboptimal levels, of DLDD.
The dark gray boxes indicate the type of economic analysis that is carried out, and the light
gray arrows show the flow of information that is necessary to perform the different elements of the
global economic analysis. A decrease in the provision of terrestrial ecosystem services and their
benefits has direct economic costs to humans, such as decreased food security and increased food
prices (via the role of markets). These costs are quantified in the top-right gray box. In addition to
affecting the stream of benefits derived from ecosystem services, DLDD also has indirect effects of
importance to humans. For instance, it affects land and other agricultural input markets, thus affecting
their prices and the prices of the goods produced. Further, the impacts on the agricultural market (on
any sector that depends directly on terrestrial ecosystem services and benefits) have intersectoral,
economywide effects that are passed to other sectors by what economists call multiplier effects. Thus,
these direct and indirect effects of DLDD can widely affect poverty and national income and thus
have far-reaching socioeconomic consequences. The indirect effects and their costs are analyzed in
the two parallel dark gray boxes. Ideally, all indirect and off-site effects should be accounted for in the
economic analysis to ensure that the assessment is from society’s point of view and includes all
existing externalities, in addition to the private costs that are usually considered when individuals
decide on land use. How the different concepts described so far—externalities, private and social
costs, and on-site, off-site, direct, indirect, current, and future costs—relate to each other is depicted in
Figure 1.2.
Figure 1.2—Costs and benefits—Concepts
Source: Author’s creation.
Similarly, actions against DLDD have direct benefits and costs—the costs of specific
measures and economywide indirect effects—that is, opportunity costs. In other words, resources
devoted for these actions cannot be used elsewhere. Thus, mobilizing those resources to prevent or
mitigate DLDD affects other sectors of the economy as well. The comparison of the values obtained
in the two parallel dark gray boxes—the costs of action versus inaction against DLDD—is the
purpose of the global analysis.
Institutional arrangements—or the “rules of the game” that determine whether actors choose
to act against DLDD and whether the level or type of action undertaken will effectively reduce or halt
DLDD—are not represented in the conceptual framework. Nonetheless, it is crucial to identify and
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