1. 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

10. 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

11. 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

12. 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):

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

14. 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)

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

16. 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: 

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

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

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

20. Social allocation Max: FOC: Social land allocation:

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

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

23. 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

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

25. CRS technology: farmers' derived demand for land

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

27. Urban Land demand estimation

28. 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)

29. Transforming Crops to Crop-groups based on data

30. WTP specification (permits interaction) Conditional WTP: wtp 1i = (  1 +  1y y i +  1A Age i )L i1 + (  12 L i2 +  13 L i3 )L i1 + 0.5  1 L i1 2 wtp 2i = (  2 +  2y y i +  2A Age i )L i2 + (  12 L i1 +  23 L i3 )L i2 + 0.5  2 L i2 2 wtp 3i = (  3 +  3y y i +  3A Age i )L i3 + (  13 L i1 +  23 L i2 )L i3 + 0.5  3 L i3 2 Likelihood of i’th observation:

31. Descriptive stat of WTP data

32. Estimation results (MLE)

33. Market Allocation

34. Social Allocation

35. Population effect (doubling the population) 4750 5000 5250 5500 5750 6000 100 200 300 400 500 600 700 D A M D A S (N=70000) S N) () D H (N= ) D A (=140000 D H N= L A S (N=70000) = 5,061 ha L A S (N=140000) =5,234 ha

36. 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 ($) 33.531.61615.5 WTP as a share of return from farming (%)

37. 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)

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