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The Amenity Value of Agricultural Landscape and Rural-Urban Land Allocation Aliza Fleischer and Yacov The Amenity Value of Agricultural Landscape and Rural-Urban Land Allocation Aliza Fleischer and Yacov Tsur Department of Agricultural Economics and Management The Hebrew University of Jerusalem

Rationale: • Population and income growth 1. Increases housing demand (urban land) 2. Increases Rationale: • Population and income growth 1. Increases housing demand (urban land) 2. Increases demand for environmental amenities (incl rural landscape) • Ag landscape is public good • market failure and need for regulation

Objectives: • Analyze the role of agricultural landscape in rural-urban land allocation, allowing landscape Objectives: • Analyze the role of agricultural landscape in rural-urban land allocation, allowing landscape amenity value to vary across crops • Evaluate welfare loss due to market failure • Study effects of population and income growth • Draw policy implications

Model: Urban sector: • N households, derive utility from housing land ( H =LH/N), Model: Urban sector: • N households, derive utility from housing land ( H =LH/N), other private goods z, and crop-specific agricultural landscape (L = (L 0, L 1, L 2, …, LJ): u(z, H, L) = up(z, H) + ue(L) • Max u over {z, H} subject to budget constraint gives demands z(r. H, y) and H(r. H, y). Inverting H(r. H, y) inverse demand for urban land DH( H, y):

Urban land demand $/ha DH L =L -L H A Urban land demand $/ha DH L =L -L H A

Urban sector WTP for Ag landscape Indirect utility: v(y , L) = up(z(r. H, Urban sector WTP for Ag landscape Indirect utility: v(y , L) = up(z(r. H, y), H(r. H, y)) + ue(L) Willingness to pay (WTP) to preserve landscape pattern L = (L 0, L 1, L 2, …, LJ), denoted wtp(y, L) is defined by v(y + wtp(y, L) , 0) = v(y , L)

Conditional WTP: Conditional WTP to preserve land type j (Lj) given all other crops Conditional WTP: Conditional WTP to preserve land type j (Lj) given all other crops land allocation (L-j):

Ag sector: Farmland demand NA identical farmers growing K crops Fk(xk, k) crop k Ag sector: Farmland demand NA identical farmers growing K crops Fk(xk, k) crop k production function, MAX_{xk} xk( k), k = 1, 2, …, K (prices suppressed as arguments) k( k) = pk. F(xk( k), k) - pxxk( k), k = 1, 2, …, K At land rental rate r, farm’s demand for cropland k: k (Lk/NA) = r, k = 1, 2, …, K Demand for Ag land: horizontal summation:

$/ha Crop 1 Crop 3 Aggregate Crop 2 ha $/ha Crop 1 Crop 3 Aggregate Crop 2 ha

Market Allocation Market equilibrium: The region size is given, thus: Market allocation: Market Allocation Market equilibrium: The region size is given, thus: Market allocation:

Market Allocation $/ha Urban land demand Ag land demand LA LM A LH =L Market Allocation $/ha Urban land demand Ag land demand LA LM A LH =L -LA

Social allocation Max: FOC: Social land allocation: Social allocation Max: FOC: Social land allocation:

Schematic (incorrect) view: $/ha DW loss DA P DH LA LM A S LA Schematic (incorrect) view: $/ha DW loss DA P DH LA LM A S LA LH = L -LA

Population effect: $/ha LA LM A S LA LH = L -LA Population effect: $/ha LA LM A S LA LH = L -LA

Application to the South Sharon region in Israel • Non-metropolitan region • 10, 190 Application to the South Sharon region in Israel • Non-metropolitan region • 10, 190 ha, of which 200 ha are parks • Number of households: about 70, 000

Agricultural Data and Land Use Distribution of the Study Region Agricultural Data and Land Use Distribution of the Study Region

CRS technology: farmers' derived demand for land CRS technology: farmers' derived demand for land

 Urban land demand Descriptive Statistics of the Regional Councils' Data Urban land demand Descriptive Statistics of the Regional Councils' Data

Urban Land demand estimation Urban Land demand estimation

WTP data, specification & Estimation • Data collected via double-bounded-dichotomous-choice elicitation method • Focus WTP data, specification & Estimation • Data collected via double-bounded-dichotomous-choice elicitation method • Focus groups, pre-test and face-to-face questionnaire among 350 respondents • Respondent received pictures of crops landscape; confronted with scenario under which the agricultural landscape would be developed • Preserving ag landscape requires a tax (at the bid level)

Transforming Crops to Crop-groups based on data Transforming Crops to Crop-groups based on data

WTP specification (permits interaction) Conditional WTP: wtp 1 i = ( 1 + 1 WTP specification (permits interaction) Conditional WTP: wtp 1 i = ( 1 + 1 yyi + 1 AAgei)Li 1+ ( 12 Li 2 + 13 Li 3)Li 1+ 0. 5 1 Li 12 wtp 2 i = ( 2 + 2 yyi + 2 AAgei)Li 2+ ( 12 Li 1 + 23 Li 3)Li 2+ 0. 5 2 Li 22 wtp 3 i = ( 3 + 3 yyi + 3 AAgei)Li 3+ ( 13 Li 1 + 23 Li 2)Li 3+ 0. 5 3 Li 32 Likelihood of i’th observation:

Descriptive stat of WTP data Descriptive stat of WTP data

Estimation results (MLE) Estimation results (MLE)

Market Allocation Market Allocation

Social Allocation Social Allocation

Population effect (doubling the population) 700 600 DAS (N=140000) DH (N=140000) 500 400 DAS Population effect (doubling the population) 700 600 DAS (N=140000) DH (N=140000) 500 400 DAS (N=70000) DH (N=70000) 300 DAM 200 100 4750 5000 LAS (N=70000) = 5, 061 ha 5250 5500 LAS (N=140000) = 5, 234 ha 5750 6000

Summary of empirical findings Total area: 10, 190 Reserved open space: 200 ha Area Summary of empirical findings Total area: 10, 190 Reserved open space: 200 ha Area for allocation between crop production and housing: 9, 990 ha N= 70, 000 households N = 140, 000 households Market Social LA (ha) 4, 490 ha 5, 061 ha 4, 380 ha 5, 234 ha LH (ha) 5, 500 ha 4, 929 ha 5, 610 ha 4, 756 ha 3, 478, 350 3, 594, 780 6, 910, 000 7, 260, 000 15. 5 16 31. 6 33. 5 Aggregate WTP ($) WTP as a share of return from farming (%)

Main empirical findings: • Accounting for Ag landscape reduces urban land allocation by 10 Main empirical findings: • Accounting for Ag landscape reduces urban land allocation by 10 % and increases farmland allocation by about 13 % • Aggregate WTPs for Ag landscape are currently about 16 % of total return to farming and will increase to 33 % with a doubling of the population • Population growth calls for an increase in Ag land (contrary to market allocation)

Policy: • Intervention: • zoning • Market-based mechanisms, e. g. , rural tourism infrastructure Policy: • Intervention: • zoning • Market-based mechanisms, e. g. , rural tourism infrastructure • Ag landscape subsidies • Implications for farm programs