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SHIVELY ZELEK : Policy Environment Link Philippine Journal of Development 101 Number 53, Volume XXIX, No. 1, First Semester 2002 Linking Economic Policy and Environmental Outcomes at a Watershed Scale GERALD SHIVELY AND CHARLES ZELEK * ABSTRACT Do the most promising policies to promote sustainable upland farm- ing originate at the local or national level? Will coordination of local and national efforts produce better outcomes? In this paper, we used an optimization-simulation model of the Manupali watershed in the Philippines to investigate these issues. We compared the economic and environmental effects of four sets of stylized policy changes: (1) local policies that restrict some forms of land use; (2) local attempts to subsidize environment-friendly technologies; (3) a crop-specific tax levied on vegetable production; and (4) a hybrid approach that seeks to coordinate local technology initiatives with a broader-based national pricing policy. INTRODUCTION The protection and management of watersheds is both a lo- cal and national policy imperative throughout the developing world, especially in densely populated regions of South and South- east Asia (Doolette and Magrath 1990; APO 1995). High rates of hillside erosion and downstream sedimentation are among the most * Respectively, Associate Professor, Department of Agricultural Economics, Purdue Uni- versity, and Economist, USDA Natural Resource Conservation Service. This research was made possible through the support provided by the Office of Agriculture and Food Security, Bureau for Global Pr