Did Pressler fully understand how to use the indicator per cent?

A classical problem in forest economics is the determination of the optimal rotation age. It is commonly acknowledged that Martin Faustmann and Max Robert Pressler contributed the most to the solution of this problem. Faustmann formulated the renowned land expectation value formula, which laid the foundation for economic analyses of the optimal rotation problem. He also provided several hints on how to correctly solve the problem. Pressler's work focused on the growth of the capital in a forest stand. He invented the concept of Indicator Per Cent, and argued that the Indicator Per Cent should be used to guide forestry decision-making. Pressler correctly stated how to use the Indicator Per Cent to determine when a stand should be harvested. However, his suggestions about the choice among silviculture options indicate that he did not fully understand the economic implication of the Indicator Per Cent.     

Are short rotation coppices an economically interesting form of land use? A real options analysis

Short rotation coppice (SRC) is intensively discussed as being an economical and ecological advantageous alternative to traditional agricultural land use. In various countries, farmers have been encouraged through incentives to cultivate SRC. Nevertheless, they often do not switch from conventional land use to SRC, even if SRC is relatively beneficial according to the net present value (NPV) rule. Therefore, farmers do not follow the classical investment theory. A relatively new theory is the real options approach (ROA). The ROA takes further aspects like irreversibility of the investment costs, flexibility regarding investment timing, and uncertainty of the investment returns into account, which the NPV rule ignores. In the case of SRC, investment (conversion) triggers when a farmer should switch to SRC following the ROA can be higher than those following the NPV rule. As it is often the case in real options applications, decision makers’ possibility to disinvest in general and farmers’ possibility to reconvert, in particular within the useful lifetime of SRC, is not considered. We build a model to calculate the conversion triggers for switching from annual crop production to SRC following the ROA. We consider the opportunity to reconvert the land and evaluate the respective effects on the conversion triggers according to the ROA. Furthermore, we analyze the effect of a former governmental incentive, in terms of an investment subsidy, on the conversion triggers of both theories. Our calculations show that following the ROA, a farmer should change land use to SRC more slowly than when following the NPV rule. Furthermore, neglecting the reconversion possibility would cause considerable bias amongst the results. The consideration of investment subsidies diminishes the conversion triggers of both theories. We conclude that the ROA can at least partially explain farmers’ inertia of converting to SRC.     

Could the Faustmann model have an interior minimum solution?

The growth of an even-aged stand usually follows a S-shaped pattern, implying that the growth function is convex when stand age is low and concave when stand age is high. Given such a growth function, the Faustmann model could in theory have multiple optima and hence an interior local minimum solution. To ensure that the rotation age at which the first derivative of the land expectation value equals zero is a maximum, it is often assumed that the growth function is concave in stand age. Yet there is no convincing argument for excluding the possibility of conducting the final harvest before the growth function changes to concave. We argue that under normal circumstances the Faustmann model does not have any interior minimum. It is neither necessary nor proper to assume that the growth function is concave in the vicinity of the optimal rotation age. When the interest rate is high, the optimal rotation may lie in the interval on which the growth function is convex, i.e. before volume or value growth culminates.     

Optimal farm size in an uncertain land market: the case of Kyrgyz Republic

This article applies a real options model to the problem of land development. Making use of the 1998–2001 Kyrgyz Household Budget Survey, we show that when the hypothesis of decreasing return to scale holds, the relation between the threshold value of revenue per hectare and the amount of land cultivated is positive. In addition, the relation between the threshold and the amount of land owned is positive in the case of continuous supply of land and negative when there is discontinuous supply of land. The direct consequence is that, in the first case, smaller farms will be more willing to rent land and exercise the option where, in the second case, larger farms will exercise first. The results suggest three main conclusions: (i) the combination of uncertainty and irreversibility is an important factor in land development decisions, (ii) farmer behavior is consistent with the continuous profit maximization model, and (iii) farming unit revenue tends to be positively related to farm size, once uncertainty is properly accounted for.     

Determinants of agricultural land rental market transactions in Bangladesh

Land rental market transactions have been the norm in land scarce rural Bangladesh mainly due to the inadequacies of the governmental land distribution system to meet the growing demand for land and to correct imbalances in factor proportions at the farm-level. The present study jointly determines the socio-economic factors underlying decision to rent-in land and/or rent-out land by the Bangladeshi farmers in the land rental market using a bivariate Tobit model. The model diagnostic reveals that the decisions to rent-in and/or rent-out land is significantly correlated, implying that univariate analysis of such decisions are biased, thereby, justifying the use of a bivariate approach. Results reveal that a number of socio-economic factors affect farmers’ participation in the land rental market and work in opposite directions regarding the decision to rent-in or rent-out land. The likelihood of renting-in land is higher for farmers with inadequate cultivable land but with higher levels of livestock and other farm capital asset ownership, and also for those located in areas with developed infrastructure and fertile soils. On the other hand, the likelihood of renting-out land is higher among farmers with higher levels of cultivable land but inadequate farm capital and livestock resources, higher levels of education, less subsistence pressure, and poor extension contact. Geography does matter, as the likelihood of land transactions is higher in agriculturally intensive and/or developed regions. Government policy has an important role to play to improve the factor equalisation role of these land rental markets through, for example, investment in education, agricultural extension, rural infrastructure and the livestock sector.     

Smallholder land ownership in Kenya: distribution between households and through time

This study uses panel data to demonstrate two dimensions of land ownership: the distribution between households at a given time and changes within a household over time. We note that recognizing the latter dimension is only possible when analyzing rare long‐term panel data. We estimate a model for land ownership using a version of the correlated random effects estimator to uniquely identify the determinants of both dimensions amongst Kenyan smallholders. We find life cycle effects are a key determinant of both distributions, and identify important ways in which initial conditions such as inheritance and off‐farm income relate to the dynamics of ownership. We find that population density is a key determinant of differences between households, but also that a given household's land ownership is not affected in the short term as population density increases around them. Controlling for population density, households own more land when they are closer to road networks where the economic value of land is higher. We find important vulnerabilities for the land security of widows, but this vulnerability is geographically heterogeneous.     

Competition for land in the global bioeconomy

The global land use implications of biofuel expansion have received considerable attention in the literature over the past decade. Model‐based estimates of the emissions from cropland expansion have been used to assess the environmental impacts of biofuel policies. And integrated assessment models have estimated the potential for biofuels to contribute to greenhouse gas (GHG) abatement over the coming century. All of these studies feature, explicitly or implicitly, competition between biofuel feed stocks and other land uses. However, the economic mechanisms governing this competition, as well as the contribution of biofuels to global land use change, have not received the close scrutiny that they deserve. The purpose of this article is to offer a deeper look at these factors. We begin with a comparative static analysis which assesses the impact of exogenously specified forecasts of biofuel expansion over the period: 2006–2035. Global land use change is decomposed according to the three key margins of economic response: extensive supply, intensive supply, and demand. Under the International Energy Agency's “New Policies” scenario, biofuels account for nearly one‐fifth of global land use change over the 2006–2035 period. The article also offers a comparative dynamic analysis which determines the optimal path for first and second generation biofuels over the course of the entire 21st century. In the absence of GHG regulation, the welfare‐maximizing path for global land use, in the face of 3% annual growth in oil prices, allocates 225 Mha to biofuel feed stocks by 2100, with the associated biofuels accounting for about 30% of global liquid fuel consumption. This area expansion is somewhat diminished by expected climate change impacts on agriculture, while it is significantly increased by an aggressive GHG emissions target and by advances in conversion efficiency of second generation biofuels.     

Economic analysis of exploitation and regeneration in plantations with problematic site productivity

Although intensive managed plantations clearly increase the growth and yield of forests several papers refer to declining forest productivity. Therefore in this paper we study the impact of declining forest productivity on the land expectation value and the optimal rotation length. We start from the research by Lu and Chang (1996) and try to fill the gap between the stable site productivity (“best”) and the site mining (“worst”) cases. For that we extend the classical Faustmann model by availability of different recovering technologies. In general the model allows the analysis of the two plantation groups: “mining the site by high productive plantation followed by management of degraded areas” and “high productive plantation and regeneration cycling” with the same comparative static. The model, analysis and comparison with the two extreme cases in Lu and Chang (1996) leads to a detailed understanding of land use management when site productivity decline is possible. Particularly the relation between declining periods with intensive land use and land use alternatives after declining periods with regeneration can be well understood. Findings are: Not ever declining process asks for regeneration. Many declining processes can be stopped at early times by high cash flows after mining periods. Shortenings of the regeneration time can boost site mining intensities.     

Diet,trade and land use: a socio-ecological analysis of the transformation of the olive oil system

Within only two decades olive oil developed from a niche product which could hardly be found in food stores outside the producing regions towards an integrated component in the diets of industrial countries. This paper discusses the impacts of the promotion of the “healthy Mediterranean diet” on land use and agro-ecosystems in the producing countries. It examines the dynamics of olive oil production, trade and consumption in the EU15 in the period 1972–2003 and the links between dietary patterns, trade and land use. It analyses the underlying socio-economic driving forces behind the increasing spatial disconnect between production and consumption of olive oil in the EU15 and in particular in Spain, the world largest producer during the last three decades.     

Determinants and impact of sustainable land management (SLM) investments: A systems evaluation in the Blue Nile Basin,Ethiopia

Ongoing debate over water management along the Blue Nile and land degradation in Ethiopia emphasizes the need for efficiency gains in agricultural production through sustainable land management (SLM). However, previous SLM studies overlook the tradeoffs involved in maintaining SLM investments over time. We address this limitation by combining a household survey that evaluates the economic impacts of SLM investments and maintenance, with a hydrological model that explores location‐specific infrastructure effects. We then use a multi‐market model to evaluate the impacts of alternative SLM investments on agricultural production, prices, and incomes over time. Analysis suggests SLM investments must be maintained for at least seven years to show significant increases in value of production, and that terraces on moderate and steep slopes are most effective in increasing agricultural yields. However, the benefits of terracing do not outweigh the cost of foregone off‐farm labor opportunities, nor compensate for lower agricultural prices from increased supply. Thus, SLM investments must be paired with other input and infrastructure investments, as well as subsidies for initial labor costs, in order to incentivize adoption and long‐term SLM maintenance.     

The multiple effects of carbon values on optimal rotation

Non-consumptive benefits which increase with crop age, like keeping carbon sequestered, lengthen optimal rotation compared with rotation for timber alone. High proposed carbon prices may extend rotation indefinitely. Carbon storage in wood products reduces this tendency. Biomass as an energy source displacing fossil fuels favours rotations near those of maximum biomass productivity. Use of sawn timber to displace structural materials with high embodied carbon favours somewhat longer rotations. Effects of rotation on soil carbon, and fossil carbon volatilised in harvesting operations, are further complications. Including all carbon effects results in optimal rotations somewhat longer than those based only on timber value, but shorter than those based on timber plus forest carbon. To include all factors intuitively is not possible: balanced appraisal needs economic calculations.     

Financial drivers of land use decisions: The case of smallholder woodlots in Amhara,Ethiopia

A household survey on the financial drivers of woodlot production was conducted in the Lake Tana watershed of Amhara State, Ethiopia. Analysis of smallholder Eucalyptus globulus Labill. production reveals that converting uneroded over eroded croplands leads to significantly higher financial returns. Returns were also significantly higher for rotation intervals closer to the optimal economic rotation and for higher planting densities. Most woodlots had positive financial returns. The presence of negative financial returns for some households demonstrates that positive ecological externalities, a lack of economies of scale and/or myopic behavior are potentially important factors in land use decision-making. Wood utilization decisions were shown to impact the potential financial returns of households. Smallholders’ activities demonstrate that eucalyptus is an imperfect substitute for agricultural production on surplus cropland. A third of respondents indicated they had intentionally chosen to convert uneroded croplands to achieve higher returns. Smallholders faced constraints in bargaining over price and access to markets. Future land use policies should address marketing constraints and unsustainable land use activities. Harvesting soil from natural forests and the conversion of productive surplus cropland to woodlot production both present long-term sustainability challenges. This study demonstrates the importance of considering economic and social incentives when creating land use policies for smallholder's woodlot production.     

Technology change as a policy response to promote changes in land management for environmental benefits

A previous study developed a framework for choosing among groups of policy mechanisms for encouraging environmentally beneficial land-use change. The framework highlights that these choices should depend on the relative levels of private (or internal) net benefits, and public (or external) net benefits. Incentive-based mechanisms (polluter-pays and/or beneficiary-pays) and extension need to be targeted carefully to appropriate projects—where private net benefits are close to zero, and/or public net benefits are more extremely positive or negative. This article focuses on policy mechanisms that alter the net benefits of changing land management, including R&D to develop new technologies, and training to improve the skill of landholders at using existing technologies. These policy options are now treated more comprehensively within the public benefits: private benefits framework. Benefits of technology-change projects can include reductions in the opportunity cost of compliance with environmental programs, increases in the public benefits of a particular type of land-use change, or improvements in private net benefits, resulting in public benefits through greater or more rapid adoption by private landholders. From an environmental management perspective, technology development is most relevant where public net benefits of land use change are positive and private net benefits are negative, but not highly negative. There is a set of projects for which technology change is the only viable alternative to no action, highlighting the importance of technology change in these cases.     

Spillovers from high-value agriculture for exports on land use in developing countries: evidence from Madagascar

High-value agriculture for exports is increasingly important in developing countries. In a case study of contract farming for exports of vegetables from Madagascar, strong spillover effects of these trade opportunities on land use are found to exist. Using a matched plot sampling design, the productivity of rice—the main domestically consumed staple—is shown to be two-thirds higher on fields that were contracted during the off-season for the production of vegetables. This increase in yields is linked to an increase of soil fertility due to the application of fertilizer and compost, which farmers did not use prior to the contracts. Although agricultural output goes up significantly, labor productivity stays the same, suggesting that there is greater labor absorption on existing land and the diffusion of this type of technology at a larger scale throughout Madagascar would be expected to substantially decrease incentives to deforest by increasing wages and to boost productivity of existing lands relative to newly deforested ones.     

Modeling linkages between climate policy and land use: an overview

Agriculture and forestry play an important role in emitting and storing greenhouse gases. For an efficient and cost-effective climate policy, it is therefore important to include land use, land-use change, and forestry (LULUCF) explicitly in economy-climate models. This article gives an overview and assessment of existing approaches to include LULUCF into partial and general equilibrium economy-climate models. For each class of models, we describe different examples, their treatment of land, and their potential for and applicability to policy analysis, as well as their shortcomings. We identify data requirements and conceptual problems, and provide suggestions for future research.     

Land use for transport projects: Estimating land value

Transportation projects are typically characterized by increased land use, which is a scarce resource of economic value. However, there is a tendency to ignore land value during feasibility studies of transportation projects. This may lead to a reduction in the economic efficiency of a project and to increased land use. This paper presents an economic model, based on the relationship between the elasticity of land price with respect to density, and estimating the future value of land designated for various uses, including transportation projects. The model was applied to transactional data from Israel, and was used for examining the value of land designated for two transport projects within Israel. The conclusions of the study indicate that taking the land value during a feasibility analysis of transportation projects into account, may lead to the consideration of other alternative plans, which may prevent the excessive use of land.     

Extra-legal land market dynamics on a Guatemalan agricultural frontier: Implications for neoliberal land policies

Neoliberal land policies such as land administration seek to improve property rights and the efficiency of land markets to boost rural economic production. Quantitative studies of pre-existing land markets can help planners to tailor these policies to local conditions. In this article we examine an extra-legal land market currently being modernized by a World Bank-sponsored land administration effort. Specifically, we use a hedonic-type revealed preference model and household survey data to estimate the factors affecting extra-legal land prices along an agricultural frontier in Petén, Guatemala. Our model indicates that land value is significantly affected by land attributes including location, tenure status, presence of water, distance to roads, and distance to landowners’ homes, and that land prices in the northwestern Petén are estimated to have risen on average 26.5% per year between 1977 and 2000. We contend that this rate of increase provides a strong incentive for colonists to speculate in land rather than invest in state sanctioned property rights. We conclude that if frontier development programs, such as land administration, are to become attractive to settlers in Petén and elsewhere, they must compete favorably with economic incentives associated with land speculation, or alternatively, target landowners who are not interested in playing the land market.     

Fragmentation of land ownership in Slovakia: Evolution,context, analysis and possible solutions

Land ownership fragmentation is currently a very topical issue in Slovakia. In particular, small farmers complain that even 30 years after the end of the previous (“real socialist”) regime, there has been no significant change in the structure of agricultural land use. The subject of the article is not the land fragmentation in terms of use. In Slovakia, the problem is rather the opposite. This contribution deals with fragmentation of ownership that is mostly invisible in the landscape. Usage still dominates over the ownership and the real landowner cannot get his or her own property in a simple way. The reason for this is huge fragmentation of land ownership, which makes it virtually impossible to actually claim it. Well known solution is the land consolidation that does not advance at a rate that would guarantee the rights (and obligations) of all owners in the foreseeable future in Slovakia. Neglecting the land fragmentation by authorities leads to tense situations between landowners and land tenants and also co-causes a stagnation of rural development and issues with landscape protection. The paper describes the specific state of land ownership in Slovakia and attempts to explain this complicated situation on a sample of 50 historical and modern ownership documents. This contribution has the ambition to specify the largely yet unresolved problems that arise from the current state of massive fragmentation of land ownership. The aim of the paper is also to fill in the information gap on the topic, not only in the national context.     

Impact of land tenure on land use in low-income countries

The role of land tenure in agricultural development has been a subject of intensive research, particularly within the context of land and agrarian reform. The complexity of the world's major land tenure systems is well recognized and no attempt is made here to go beyond an overview as this paper limits itself to the impact of land tenure on land use in low income situations. Present land use is determined by a host of factors, of a physical/biological and socioeconomic nature. In applying land evaluation, the question it is necessary to ask is to what extent, when and where land tenure conditions act as a considerable constraining factor impeding a more optimal use of land resources. Even in what used to be low-population density areas (such as Sub-Saharan Africa) it appears that the frontier phase is becoming exhausted and the intensification of agriculture proceeds; it becomes imperative to examine land tenure in relation to land use implications. It is shown that so far a multi-disciplinary approach has often been lacking in treating land tenure and related issues.