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This study examines the drivers of land use in a shifting cultivation system with forest fallow. Forest fallow provides on-farm soil quality benefits, local hydrological regulation, and global public goods. An optimal control model demonstrates that farmers have an incentive to fallow less than is socially optimal, though market failures limiting crop production can have a countervailing effect by encouraging fallow. An econometric model estimated using data from the Brazilian Amazon suggests that fallowing does not result from internalization of local fallow services but instead is associated with poor market access and labor and liquidity constraints.


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