This paper describes the results of an ecological-economic modelling exercise of the management of a scarce habitat, namely heather moor/and. The Orkney Islands of Scotland are used to illustrate a modelling approach which could be easily applied elsewhere, and to other habitats. We describe the evolution and present condition of heather moorland on Orkney, then quantify the extent on over-grazing (leading to ecological damage) on a spatial basis. This is accomplished using a model of heather utilisation and heather productivity. Critical grazing limits are then used as constraints in an economic model of farm production decisions, which enables us /0 quantify the minimum necessary compensation payments which farmers should be offered to off\'et income losses due to grazing restrictions. Such a policy is in line with European Union and UK agri-environmental policy, which typically uses payments for income foregone as a means of persuading farmers to protect environmental quality_


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