The Cost of Agricultural Land Preservation and the Sitting of Urban Development
Abstract
In North America a disproportionately high percentage of prime agricultural land is converted for urban development. Much controversy exists about this irreversible loss. Some claim that it will result in future food shortages, while others argue that technological advance has made agricultural land less scarce. There is no evidence of a looming food scarcity in the western world. Nevertheless, the future scarcity issue is shrouded in great uncertainty.
Preserving prime land is a policy option to avoid possible future food contingencies. Preservation is not a costless undertaking, however. Costs are always defined in relation to the objectives pursued. In social economics the objective is usually defined as maximizing the net contribution to national product. This is not a meaningful objective if long time horizons, extreme uncertainty, and irreversibility are involved. In that case it is better to minimize possible maximum losses. This is akin to an insurance policy. The problem then is to choose premium payments and benefits in such a way that maximum possible future losses are minimized. The premium that society pays for preserving prime land is identified as the possible additional development, servicing, commuting, and environmental costs on lower compared to prime quality land minus the gain in productivity on prime compared to lower grade land. The premium is then compared to the benefits of the policy.
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