Agricultural production for many countries seems to generate a negative economic profit due to waves of industrialization in the past several decades. One of the main reasons is that the value of the land in non-agricultural uses rises considerably. However, the profitability of agricultural production may be underestimated if the positive externalities associated with farmland are not included. A proper accounting for these positive externalities casts agricultural production in a more favorable light. This paper focuses on paddy rice fields in Taiwan. A double-bounded dichotomous Contingent Valuation Method (CVM) is combined with the selection-bias-correction procedure to estimate the magnitude of the positive externalities. The evidence suggests that the majority of people in Taiwan recognize the externalities of paddy rice fields. Each household is willing to pay on average about $1777.92 NT annually to sustain the rice fields' water preservation and land protection functions, which is about 3.57-fold of the intrinsic economic value of rice. Thus, the rising opportunity costs of retaining land in agricultural production is not yet sufficient to justify a reallocation of this resource from agriculture to other uses. The policy prescription favors retention of the land in agricultural production. In fact, if efficiency is the goal of policy makers, men Taiwan can maintain rice field area up to three times more than currently present under the situation without further government subsidy.
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