The Critical Role of Conversion Cost and Comparative Advantage in Modeling Agricultural Land Use Change
Electronic version of an article published as [Climate Change Economics, Volume 11, Number 1, 2020, 44 pages] [https://doi.org/10.1142/S2010007820500049] © [copyright World Scientific Publishing Company] [https://www.worldscientific.com/doi/10.1142/S2010007820500049]
Posted: 5 Sep 2020
Date Written: February 19, 2020
The difference in land use modeling approaches is an important uncertain factor in evaluating future climate scenarios in global economic models. We compare five widely used land use modeling approaches: constrained optimization, constant elasticity of transformation (CET), the additive form of constant elasticity of transformation (ACET), logit, and Ricardian. We demonstrate that the approaches differ not only by the extent of parameter uses but also by the definition of conversion cost and the consideration of comparative advantage implied by land heterogeneity. We develop a generalized hybrid approach that incorporates ACET/logit and Ricardian to account for both conversion cost and comparative advantage. We use this hybrid approach to estimate future climate impacts on agriculture. We find a welfare loss of about 0.38–0.46% of the global GDP. We demonstrate that ignoring land heterogeneity or land conversion costs underestimates climate impacts on agricultural production and welfare.
Keywords: Land use modeling, land heterogeneity, conversion cost, Ricardian model, climate impact, welfare
JEL Classification: Q54, Q15
Suggested Citation: Suggested Citation