To understand variables that link the welfare, livelihood and the watershed is crucial when instituting the integrated watershed management. This requires having indicators to show changes of the condition of the welfare, livelihoods and watershed resources. However, the combination of livelihoods and welfare of the local communities who depend largely on watershed resources for income, food, energy and shelter have not been adequately considered elsewhere. This results to the imbalance between the human development and the conservation priorities when implementing watershed management policies. The aim of this paper is to present the technical efficiency indicator (TEI) constructed from socioeconomic and watershed related variables. The stochastic frontier analysis (SFA) is employed to construct the TEI. The novelty in the current study is its ability to combine socioeconomic and biophysical information to obtain a sustainability indicator of both the natural resource supporting people’s livelihoods and the welfare of people. The construction of TEI fills the knowledge gap on how to achieve the mutual balance between human development and conservation objectives in the natural resource management arena. Study findings are that there is significant household dependence on the watershed resources. This implies that watershed resources have a greater role to play on the welfare of the communities due to existing direct relationship between crop cultivation and the watershed environment. Therefore there is a need to take into account the sustainability of the watershed resources when setting up development policy in the study area.
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