A Survey of Current Issues
New Horizons in Environmental Economics series
Edited by Tom Tietenberg and Henk Folmer
Chapter 3: Land use decisions and policy at the intensive and extensive margins
Ian W. Hardie, Peter J. Parks and G. Cornelis van Kooten1 1. BACKGROUND AND INTRODUCTION There are few economic activities that do not involve land resources in some way. Land is a location for residential, commercial and industrial activities, an input in the production of private and public goods, and a factor in household production of leisure and recreational goods. While many economically relevant market and non-market outputs can be produced by natural landscapes, economic effort is frequently required to convert or ‘develop’ natural land into a condition that produces a desired mix of outputs. Because the quantity of land is finite, the opportunity cost of land development becomes apparent when undeveloped land becomes scarce. Public goods such as habitat for biologically diverse species or terrestrial stores of carbon (that would otherwise be released to the atmosphere to contribute to global warming) can be lost when land use or its cover is changed. The growing scarcity of natural landscapes throughout much of the world, combined with increased awareness of environmental and resource consequences of land use and land cover change, has renewed interest in, and increased research on, the economics of land use. This is partly because influencing land use or land cover is necessary to help solve the resource and environmental problems that face policymakers today. Private landowners’ decisions to change land use can create large spillover effects and environmental externalities at two ‘margins’ in the spectrum of land uses. One of these, to which we refer as the...
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