Economies of Scope in the Agricultural Provision of Ecosystem Services: An Application to a High Cost Production Region

Abstract

Joint production of agriculture commodities and environmental goods and services is a key attribute of multifunctionality. However, complex natural and economic interactions make a sound analysis difficult. In this regard, the concept of economies of scope provides a simple policy oriented indicator of jointness. Thus, the existence of economies of scope can be regarded as a precondition for the implementation of agricultural policies with respect to environmental goods and services. We apply the concept of economies of scope to the provision of ecosystem services in the Swiss lowlands using a spatially explicit economic-ecological programming model. Thereby, the consideration of non-agricultural competitors in the provision of ecosystem services allows a simultaneous assessment of economies of scope. A cost-effectiveness analysis shows the least-cost supplier of ecosystem services and spatial patterns in the supply for these services. Results imply the existence of economies of scope and hence strong jointness between agricultural production and the provision of ecosystem services. However, the potential for public cost savings due to structural change in agriculture is considerable. Moreover, the development of the second generation in biomass conversion technologies may enhance a non-agricultural provision of these services. Therefore, a continuous improvement in agricultural production efficiency is a precondition for strong jointness and thus multifunctionality.