Applying Experiments to Land Economics: Public Information and Auction Efficiency in Ecosystem Service Markets
Kent D. Messer, Joshua M. Duke, and Lori Lynch
The use of laboratory and field economic experiments to explore issues in land economics is increasingly popular as researchers identify problems that cannot be adequately addressed by traditional economic theory or empirical techniques. This article reviews this area’s growing literature as well as offers a framework to understand the trade-offs between issues of experimental control, problem context, and representativeness of participants. The key experiment design elements related to land economics are discussed. These elements are then illustrated by a study of the efficiency of reverse auctions for land conservation given different structures of private and public information. The study results suggest that different levels of public information affect sellers’ bidding behavior as well as competitiveness. Overbidding and too little market competition leads to significant loss of efficiency. These results have implications to how to design ecosystem service market cost effectively.
Elena G. Irwin and Douglas H. Wrenn
This chapter provides a targeted review and assessment of current empirical methods most commonly used in economics to model spatially explicit land use and land use change. Empirical models are broadly defined as those that use data on land use and the underlying demand and supply processes to specify model parameters in some way. Four main types of modeling methods are considered: reduced-form econometric, structural econometric, spatial equilibrium simulation, and agent-based simulation. Key strengths and weaknesses of each method are discussed, and the applicability of each method for answering various research questions, including policy scenarios, is illustrated with a few recent examples from the literature. The chapter concludes with a discussion of potential complementarities among these various approaches and several critical research gaps.
Nicholas E. Piggott and Thomas L. Marsh
This article provides an overview of the literature on consumer and demand system analysis with emphasis on complete food demand systems. It presents theoretical foundations, constrained utility maximization, properties, and general demand restrictions. It discusses dual functions, including the expenditure function, the indirect utility function, and the distance function. The first three dual approaches are standard tools of the applied demand system analyst. Then it introduces the issue of welfare effects and integrability along with separability and aggregation. The article also provides a review of functional forms and covers econometric issues that include estimation, inference and hypothesis testing, specification tests, and other empirical issues. Models of the almost ideal demand and inverse systems as well as some additional hypothesis tests and inferences regarding model performance are estimated and reported.
H. Allen Klaiber and Nicolai V. Kuminoff
Equilibrium sorting models of household location choice provide a framework for understanding the interactions among people, markets, and spatially delineated amenities. Sorting models begin by characterizing the spatial landscape and household preferences. Utility-maximizing location choices are expressed as a function of the characteristics of people, houses, and communities, as well as of structural parameters describing latent preferences. This relationship is then inverted, using the logic of revealed preference to characterize the distribution of household preferences for amenities. Estimation results are used to calculate the willingness to pay for changes in landscape amenities and to predict how people and markets will adjust to counterfactual policies. This chapter aims to make sorting models accessible to economists who are new to the literature and to clarify their connection to the reduced form models of hedonic equilibria that have traditionally been used for “back of the envelope” policy analysis.
Andrew J. Plantinga and David J. Lewis
Econometric-based landscape simulation models help to identify the nature and extent of market failure problems associated with terrestrial biodiversity and to quantify the effects of corrective land use policies. This article reviews the literature on econometric-based landscape simulation models and describes four important methodological challenges that analysts face with these models: (1) representing variation in private economic returns to land at the same scale at which land use varies, (2) modeling the private information that landowners possess about the returns to their land, (3) accounting for land use intensity, and (4) recognizing the probabilistic nature of the land use transition rules derived from econometric analysis. Ways to overcome these challenges are proposed, and directions for future research are explored.
Frode Alfnes and Kyrre Rickertsen
This article describes and compares the different incentive-compatible valuation mechanisms used to evaluate food attributes. It then discusses the relationships between laboratory and field experiments. Valuation mechanisms can be implemented in different ways. It examines the effects of differences in the implementation and suggests procedural refinements of the valuation mechanisms. It assesses the validity of laboratory results outside the laboratory. Some empirical results that illustrate the usefulness of experimental markets are briefly discussed. The mechanisms discussed provide incentives for the participants to make bids that are consistent with their willingness to pay. However, several anomalies have been reported in laboratory experiments. This article briefly discusses some of these results and provides some plausible explanations for this lack of internal validity. It concludes with suggestions for a “best practice” implementation of valuation experiments in food economics and marketing.
The purpose of this article is to give a detailed description of the steps involved in designing a choice experiment and analyzing the responses. It also discusses a number of behavioral aspects of stated preference surveys, with an emphasis on hypothetical bias. It briefly presents the underlying economic model that is used to analyze discrete choices. The main idea of a choice experiment is often to estimate the welfare effects of changes in attributes. The article discusses the three important parts of the design of a stated preference survey, namely, definition of attributes and attribute levels, experimental design, and survey context, behavioral aspects, and validity tests. This article discusses the incentive properties of different choice formats, then looks at the empirical evidence on hypothetical bias, and finally at methods for reducing hypothetical bias. It mentions the importance of social context where the decision maker is not one single individual.
Seong-Hoon Cho, Seung Gyu Kim, and Roland K. Roberts
The main objective of this chapter is to provide a comprehensive review and critique of the empirical modeling literature of land use decisions, focusing particularly on the strengths and weaknesses of different spatial econometric modeling approaches and important future research directions. The objective is accomplished by providing (1) a comprehensive review of the literature on spatial econometric modeling of land use decisions, (2) a case study to illustrate one of the approaches, (3) an overall assessment of different approaches, and (4) a discussion of important directions and challenges for future research. This chapter contributes to the general understanding of spatial econometric modeling as a tool for evaluating policies designed to influence land development patterns. Advances in spatial econometric modeling allow policy makers to design land use management policies that are more effective in stimulating the desired response from a system characterized by spatial interactions.
Using Quasi-Experimental Methods to Evaluate Land Policies: Application to Maryland’s Priority Funding Legislation
Charles Towe, Rebecca Lewis, and Lori Lynch
This article discusses the advantages and inherent challenges of undertaking a quasi-experimental estimation technique for evaluation of a land use policy application. This method of evaluation enables researchers to address selection issues when defensible instrumental variables are not available. Although advantageous with regard a specific policy, the approach suffers from a potential lack of generalizability due to the lack of structure in the model. In short, the prime advantage of the quasi-experimental method may also be its greatest challenge to widespread application and formation of new policy. However, the propensity score method improves substantially on alternative approaches in evaluating land use policies in which endogenous policy selection is of concern. The chapter illustrates the procedure directly and provides a step-by-step application to an existing land use policy in Maryland.