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 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 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 =L H /N), other private goods z, and crop-specific agricultural landscape (L = (L 0,L 1,L 2,…,L J ): u(z, H,L) = u p (z, H ) + u e (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 D H ( H,y):

Urban land demand AH LLL  DHDH $/ha $/

Urban sector WTP for Ag landscape Indirect utility: v(y, L) = u p (z(r H,y), H (r H,y)) + u e (L) Willingness to pay (WTP) to preserve landscape pattern L = (L 0,L 1,L 2,…,L J ), 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 (L j ) given all other crops land allocation (L -j ):

Ag sector: Farmland demand N A identical farmers growing K crops F k (x k, k ) crop k production function, MAX_{x k } x k ( k ), k = 1,2,…,K (prices suppressed as arguments)  k ( k ) = p k F(x k ( k ), k ) - p x x k ( k ), k = 1,2,…,K At land rental rate r, farm’s demand for cropland k:  k (L k /N A ) = r, k = 1,2,…,K Demand for Ag land: horizontal summation: 

$/ha ha Crop 1 Crop 2 Crop 3 Aggregate

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

Market Allocation AH LLL  L A M A L $/ha $/ Ag land demand Urban land demand

Social allocation Max: FOC: Social land allocation:

Schematic (incorrect) view: AH LLL  D H  D A S A L L A M A L $/ha $/ DW loss

Population effect: AH LLL  S A L L A M A L $/ha $/

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

CRS technology: farmers' derived demand for land

Urban land demand Descriptive Statistics of the Regional Councils' Data

Urban Land demand estimation

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

WTP specification (permits interaction) Conditional WTP: wtp 1i = (  1 +  1y y i +  1A Age i )L i1 + (  12 L i2 +  13 L i3 )L i  1 L i1 2 wtp 2i = (  2 +  2y y i +  2A Age i )L i2 + (  12 L i1 +  23 L i3 )L i  2 L i2 2 wtp 3i = (  3 +  3y y i +  3A Age i )L i3 + (  13 L i1 +  23 L i2 )L i  3 L i3 2 Likelihood of i’th observation:

Descriptive stat of WTP data

Estimation results (MLE)

Market Allocation

Social Allocation

Population effect (doubling the population) D A M D A S (N=70000) S N) () D H (N= ) D A (= D H N= L A S (N=70000) = 5,061 ha L A S (N=140000) =5,234 ha

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 = 140,000 householdsN= 70,000 households SocialMarketSocialMarket 5,234 ha4,380 ha5,061 ha4,490 ha L A (ha) 4,756 ha5,610 ha4,929 ha5,500 ha L H (ha) 7,260,0006,910,0003,594,7803,478,350 Aggregate WTP ($) WTP as a share of return from farming (%)

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 Ag landscape subsidies Implications for farm programs