Within the perspective of evolving negotiations for Reduced Emissions from Deforestation and Degradation (REDD), the opportunity costs of deforestation are regarded as the basis for constructing a REDD mitigation cost curve. This paper presents a land-use model that measures the impact of economic and physical variables on farmers' decisions about the allocation of their land among competing uses in Brazil. It is based on a multi-output land allocation model with agricultural land as a fixed input that is to be allocated. For the first time such a land allocation model has been estimated that explicitly separates all main competing uses for forest in Brazil — soybeans, sugarcane and pasture. Our results suggest a clear substitution effect between land allocation for forest and soybeans, and for forest and pasture. The results presented here contribute to the understanding of farmers' land use decisions while providing an estimate of the opportunity costs of deforestation at the county level in Brazil.
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