An integrated assessment model of the impacts of agricultural intensification: Trade‐offs between economic benefits and water quality under uncertainty

Abstract

We integrate a model that simulates biophysical processes in soils and water with spatial and temporal heterogeneity at the basin scale with an economic model of decisions under uncertainty, to simultaneously evaluate the economic and environmental effects of farming practices and land uses that characterise agricultural intensification. The introduction of uncertainty allows the evaluation of economic impacts both due to changes in average profits and in their volatility. Through our model integration, we endogenously tackle the trade‐offs between economic benefits and environmental outcomes, in terms of nutrient levels in water. Results show that a sizable increase in economic benefits from supplemental irrigation comes from lower risk premiums. Medium‐to‐high increments of fertiliser rates in irrigated crops are dominated in terms of economic benefits by low fertiliser rate increments. We find that water quality deteriorates with intensive farming practices. However, the magnitude of the trade‐offs between economic benefits and water quality is mixed and depends on the nutrient and level of risk aversion considered. The ability of our model to quantify and document the mentioned effects is a relevant input to inform the decision‐making process of agricultural and environmental authorities, often characterised by competing and opposing objectives.