Uncertainty and Sustainability in the Management of Rangelands

Abstract

We analyze a dynamic and stochastic ecological-economic model of grazing management in semi-arid rangelands. The ecosystem is driven by stochastic precipitation. A risk averse farmer chooses a grazing management strategy under uncertainty such as to maximize expected utility from farming income. Grazing management strategies are rules about which share of the rangeland is given rest depending on the actual rainfall in that year. In a first step we determine a myopic farmer's optimal grazing management strategy and show that a risk averse farmer chooses a strategy such as to obtain insurance from the ecosystem: the optimal strategy reduces income variability, but yields less mean income than possible. In a second step we analyze the long-run ecological and economic impact of different strategies. We conclude that a myopic farmer, if he is sufficiently risk-averse, will choose a sustainable grazing management strategy, even if he does not take into account long-term ecological and economic benefits of conservative strategies.

Keywords: Ecological-economic model, semi-arid rangeland, grazing management, risk aversion, uncertainty, sustainability

JEL Classification: Q57, Q12, Q24