Improving the Way Land Use Change Is Handled in Economic Models

2020PDFJournal ArticleZhao, Xinvan der Mensbrugghe, Dominique YKeeney, Roman MTyner, Wallace E.United States. Federal Aviation Administration. Center of Excellence for Alternative Jet Fuels and EnvironmentPurdue University. Department of Agricultural EconomicsUnited States. Department of Transportation. Federal Aviation Administration. Office of Environment and EnergyUnited States. Federal Aviation Administration. Center of Excellence for Alternative Jet Fuels and EnvironmentPurdue UniversityUnited StatesLand use modelsHeterogeneityCostsEquilibrium (Economics)Land use modellingCET Additive CETLand heterogeneityConversion costGeneral equilibriumASCENTj.econmod.2019.03.00313-C-AFJE-PU-03,10,15, 19, 29This article is available under the Creative Commons CC-BY-NC-ND license and permits non-commercial use of the work as published, without adaptation or alteration provided the work is fully attributed.Sound economic modelling of land use in global economic models is critical for evaluating agricultural, biofuel, and climate policies. Current approaches do not preserve physical land area, do not account for the fact that land is of different qualities, or do not explicitly include the cost of converting land from one use to another. This study proposes a land use modelling framework building on the additive form of the constant elasticity of transformation (ACET) approach. We demonstrated that the framework could (1) directly provide traceable physical land use results, (2) flexibly handle land productivity differences based on biophysical information, (3) explicitly introduce land conversion cost, and (4) provide welfare decomposition in light of land heterogeneity and conversion cost. An experiment of mandating a 10 percent increase in grain consumption in the US food sector showed that ignoring land heterogeneity and conversion cost would underestimate the welfare loss by 28 percent.109