| Abstract: | This paper explores the economic effects of biodiversity loss on marketable agricultural output for intensive agricultural systems, which require an increasing level of artificial capital inputs. A theoretical bio‐economic model is used to derive a hypothesis about the effect of the state of biodiversity on the optimal crop output both in the longer run and in the transitional path towards the steady‐state equilibrium. The hypothesised positive relationship between biodiversity stock and optimal levels of crop output is empirically tested using a stochastic production frontier approach, based on data from a panel of UK specialised cereal farms for the period 1989–2000. The results support the theoretical hypothesis. Increases in biodiversity can lead to a continual outward shift in the output frontier (although at a decreasing rate), controlling for the relevant set of labour and capital inputs. Agricultural transition towards biodiversity conservation may be consistent with an increase in crop output in already biodiversity‐poor modern agricultural landscapes. |
