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Externalities and labour market linkages in a dynamic two-sector model of tropical agriculture

Published online by Cambridge University Press:  30 January 2006

GERALD E. SHIVELY
GERALD E. SHIVELY
Affiliation:
Department of Agricultural Economics, Purdue University, 403 West State Street, West Lafayette, IN 47907. Tel: (765) 494-4218. Fax: (765) 494-9176. E-mail: shivelyg@purdue.edu
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Abstract

This paper examines environmental and labour market linkages between two agricultural systems-one upstream and another downstream. Using data from the Philippine province of Palawan as a point of departure, the paper develops a dynamic, two-sector model of an agricultural watershed to study the evolution and impact of an erosion externality. Attention focuses on the interplay between erosion generated by the extensive upstream sector and labour productivity in a labour-intensive downstream sector. A key feature of the model is that labour productivity and labour demand downstream are influenced by the externality generated upstream. Production of the externality, in turn, is influenced by wage employment opportunities downstream. Time paths of equilibrium wages are derived. A simulation is used to study the impact of environmental payments to upland households in exchange for allocating labour away from the externality-producing activity. The analysis shows how natural processes and economic interactions between two groups influence the benefits of agricultural intensification.

Type
Research Article
Information
Environment and Development Economics , Volume 11 , Issue 1 , February 2006 , pp. 59 - 75
Copyright
© 2006 Cambridge University Press

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Footnotes

For helpful comments and conversations the author thanks the editors and reviewers, as well as Julian Alston, Ian Coxhead, Bill Easter, Edna Loehman, Bill Provencher, participants at the World Congress of Environmental and Natural Resource Economists, and seminar participants at Cornell, UC Davis, Monash University and Purdue. I retain responsibility for any shortcomings or errors. This research has been made possible through support provided by the National Science Foundation (SES-0213750) and the Office of Agriculture and Food Security, Bureau for Global Programs, USAID (SANREM CRSP PCE-A-00-98-00019-00). The opinions expressed are those of the author and do not necessarily reflect the views of sponsoring agencies.