ABSTRACT
Land use conversion is the primary factor explaining biodiversity loss. It is essential, then, to understand why land use conversion takes place. We begin with a stylized situation: a rational economic agent deciding whether to conserve or develop the land he owns or rents. To ‘fix’ the context we might assume that the decision in question is whether to conserve an area of tropical forest or to develop it, say by clearing it for agriculture. Economic rationality suggests that this decision will be determined by the relative profitability, or rate of return, of the two options. Within the conservation option we include sustainable use of the forest for, say, agro-forestry or for non-timber products such as medicinal plants, eco-tourism etc. Note that the relevant rates of return are those that accrue to the land owner or tenant. At this point no account is taken of any returns to society or to the world as a whole.
