Three Essays on Land Use, Land Management, and Land Values in the Agro-Ecosystem

Over the past few years, U.S. agriculture and farmers have experienced a myriad of macroeconomic and environmental changes that have profound implications for the well-being of farm households and the farm sector. An expanding biofuels market and growing export demand from China and India have led to rising agricultural commodity prices since mid-2000s. However, during the same time period, the residential housing market collapsed in 2007--2008 and resulted in the subsequent Great Recession, which could impose a downturn pressure on the farmland market. In addition, growing water quality problems due to excessive agricultural nutrient runoff have severely compromised many ecosystem services and have led to stronger calls for more effective nutrient management policies from both policymakers and the public. Economic analyses of farmer decisions in this constrained and evolving environment are critical to understand how these changes have impacted farmer welfare and trade-offs with ecosystem and other societal benefits. Using individual-level data on farmland parcels and farmers from Ohio and Lake Erie basin, my dissertation examines how the recent residential housing market bust, expanding ethanol production, and rising environmental concerns over nutrient management have impacted farmers' land use, land management, and land transaction decisions and the implications of these changes for farmer welfare.;Farm real estate represents over 80% of the balance sheet of the farm sector and is the single largest item in a typical farmer's investment portfolio, and thus changes in farmland values could affect the welfare of farm households and the farm sector in general. The first two chapters examine the trends and determinants of farmland values in the Midwest in the 2000s decade. In particular, the first chapter identifies the impact of the recent residential housing market bust and subsequent economic recession on farmland values, using parcel-level farmland sales data from 2001--2010 for a 50-county region under urbanization pressure in western Ohio. My estimates from hedonic regressions reveal that farmland was not immune to the residential housing bust; the portion of farmland value attributable to urban demands for developable land was almost cut in half shortly after the housing market bust in 2009--2010. This chapter offers the first analysis of the magnitude of the structural break in the effect of urban influence on surrounding farmland values due to the recent housing market bust. The second chapter investigates the capitalization of expanding biofuels market in surrounding farmland values. In particular, it tests for structural change in the relative effects of proximity to agricultural market channels before and after the construction of seven ethanol plants in or near western Ohio in late 2006--early 2007. Instrumental variables regression on the matched sample demonstrates the positive capitalization of newly constructed ethanol plants. To the best of my knowledge, this chapter is the first to provide formal evidence of the effects of ethanol market expansion on farmland values during a strong recessionary time that exerted substantial downward pressure.;The last chapter examines the interplay between agriculture and the environment, as well as the trade-off between farmer welfare and benefits of ecosystem services resulting from alternative agri-environmental policies. Excessive agricultural nutrient runoff has severely compromised the sustainability of Lake Erie agri-ecosystem, however, current voluntary conservation payments policy have been proven insufficient for nutrient reduction. Using individual level data on farm, field, and farmer characteristics, the third chapter develops a structural econometric model of farmers' profit-maximizing output supply and input demand decisions, and quantifies the social welfare impacts of alternative nutrient management policies, including uniform and targeted fertilizer taxes. Results reveal that neither a fertilizer tax nor an education campaign could alone achieve the policy goal of 40% reduction in nutrient runoff into Lake Erie, although a uniform 50% fertilizer tax could lead to a 24% reduction in mean phosphorus application rates. I also find that spatial targeting, such as phosphorus tax targeted towards ecologically sensitive subbasins, improves the cost-effectiveness of agri-environmental policies when only costs to farmers are considered; while a simpler policy such as a 50% uniform phosphorus tax would outperform other alternatives when the cost-effectiveness is measured as phosphorus reduction given net policy costs from an overall social welfare perspective.