Space and Economics Chapter 2: Land use theory Author Wim Heijman (Wageningen, the Netherlands) July 20, 2009

2. Land use theory 2.1 Functions of land 2.2 Land rent 2.3 Land rent and the intensity of land use 2.4 The price of land

2.1 Functions of land Location of raw materials Location and carrier of capital goods Input for agriculture Location and carrier for housing, recreation, infrastructure

2.1 Functions of land Land fulfills needs Ecological footprint: the amount of land per capita needed to fulfill human needs

Ecological Footprint 1997

2.1 Functions of land http://en.wikipedia.org/wiki/Ecological_footprint

2.2 Land Rent Land rent: profit of a hectare Johann Heinrich Von Thünen (1783-1850): “The Isolated State” Isotropic plane The quality of the soil is equal Transportation costs are proportional to the distance

J.H. von Thünen (1783-1850)

2.2 Land Rent Questions: Which crop is grown where? What explains the productivity of land and the intensity of land use? Solutions: Land will be used for the activity that generates the highest possible rent. The closer to the market the higher the intensity of land use and the more productive the land.

2.2 Land Rent Gross Revenue per ha: pq minus Production costs kq minus Transportation costs qat Rent R : pq – kq – qat

2.2 Land Rent R = pq – kq – qat Three rent functions for three different crops:

2.2 Land Rent Rent curves

2.2 Land Rent Crop zones: Von Thünen rings

2.3 Land Rent and intensity of land use David Ricardo (1772-1823), takes the differences in land quality into account. According to Ricardo’s land rent theory the intensity of land use (input of labour per ha) is the highest on the land of the highest quality.

David Ricardo (1772-1823)

2.3 Land Rent and intensity of land use

2.3 Land rent and intensity of land use General land rent equation:

2.3 Land rent and intensity of land use Cobb Douglass production function (01) for a hectare at the distance a from the market, with q for production, w for quality of the land, l for input of labour:

2.3 Land rent and intensity of land use Von Thünen effect: if distance a increases the input of labour l decreases Ricardo effect: if quality w increases the input of labour l increases

2.4 The price of land Price of land P is the summation of discounted rents

2.4 The price of land Land speculation: If agricultural land changes into residential land then the price will increase. Speculators anticipate that and buy agricultural land for relatively low prices. They hope to sell it at high prices for residential or industrial use in the future. If they are successful they may gain high profits. http://www.realestatejournal.com/columnists/housetalk/20030530-barta.html

2.5 Application

2.5 Application

2.5 Application

2.5 Application

2.5 Application

2.5 Application

2.5 Application Situation in 1830

2.5 Application Situation in 2000