Effective land use policy must weigh both the private and public costs and benefits of converting forests to alternate land uses. This project assesses the private and public impacts of forest to pasture conversion in the montane regions of Puerto Rico. Due to the island's water supply problems, hydrologic ecosystem services were found to be the most significant resource impacted. The value of carbon sequestration lost through conversion was found to range from 9-36 $/ha/yr. The value of other ecosystem services, notably recreation and biodiversity, were found to be highly significant in certain localities but small on an average island-wide basis. The model created in this study found that the public costs of reservoir sedimentation resulting from increased erosion and the higher incidence of landslides on pastures outweigh the public benefits of increased runoff in areas where with slopes of approximately 21º and a Revised Universal Soil Loss Equation topographic factor greater than 6.5. Results were highly dependent on the amount of sediment that is transported from the pasture to the reservoir (e.g. the sediment delivery ratio) and the marginal value of water. The private returns to pasture (400 $/ha/yr) were generally found to be greater than the sum of the public costs. The results suggest that policy-makers should take local environmental variation into account when designing forest conservation strategies. Policies should target areas with high slopes and high sediment delivery ratios.