Structural agricultural land use modeling for spatial agro-environmental policy analysis

Abstract

This paper develops a spatially disaggregated, structural econometric model of agricultural land use and production based on the joint multi-output technology representation introduced by Chambers and Just (1989). Starting from a flexible specification of the farm profit function, we derive land use allocation, input application, crop yield, and livestock intensity equations in a joint and theoretically consistent framework. To account for the presence of censored observations in micro-level data, the model is estimated as a system of two-limit Tobit equations via quasi-maximum likelihood. We present an empirical application using fine-scale spatial data covering the entirety of England and Wales and including the main economic, policy, and environmental drivers of land use change in the past forty years. A simulation of the effects of diffuse pollution reduction measures illustrates how our approach can be applied for agro-environmental policy appraisal.