Introduction

The impact of land degradation on the productivity of the land resource has been claimed to be a serious physical problem in agricultural and forestry land uses (see, for example, Balderstone et al 1982, pl35 and Schuster 1979, p1). However, the physical existence of land degradation is not necessarily evidence of an economic problem. To establish whether or not an economic problem exists requires knowledge of the costs and benefits of reducing or preventing degradation, and/or the costs and benefits of reclaiming degraded land.

An individual land user considers the costs of land degradation and other costs of production in a similar fashion. The land user will avoid or prevent land degradation to the point at which private benefits from additional prevention, equal to extra profit generated from increased production, are equal to private costs. However, the full social costs of land degradation may involve external costs, for example, in the form of damage to roads or siltation of waterways. There may also be external benefits in that soil lost from one property may enhance the soil productivity of the property on which it is deposited. There is no general incentive for landowners to consider external costs and benefits. The results of private decision making may thus diverge from those which would occur if full social costs were taken into account.

Public policy response to the existence of land degradation is generally aimed at reducing the external or offsite costs and aligning the private and social costs of production or land use.