Biodiversity on Swedish pastures: estimating biodiversity production costs

This paper estimates the costs of producing biological diversity on Swedish permanent grasslands. A simple model is introduced where biodiversity on pastures is produced using grazing animals. On the pastures, the grazing animals create a sufficient grazing pressure to lead to an environment that suits many rare and red-listed species. Two types of pastures are investigated: semi-natural and cultivated. Biological diversity produced on a pasture is estimated by combining a biodiversity indicator, which measures the quality of the land, with the size of the pasture. Biodiversity is, in this context, a quantitative measure where a given quantity can be produced either by small area with high quality or a larger area with lower quality. Two areas in different parts of Sweden are investigated. Box-Cox transformations, which provide flexible functional forms, are used in the empirical analysis and the results indicate that the biodiversity production costs differ between the regions. The major contribution of this paper is that it develops and tests a method of estimating biodiversity production costs on permanent pastures when biodiversity quality differs between pastures. If the method were to be used with cost data, that were more thoroughly collected and covered additional production areas, biodiversity cost functions could be estimated and used in applied policy work.