ABSTRACT
This chapter examines the impact of alternative expected rent streams on land-use decisions, but an alternative approach would be to focus directly on the real estate market. Landowners observe a variety of economic, hydrologic, and climatic factors relevant to decisions regarding the use of their lands for forestry or for agricultural production. A theoretical, microeconomic model of actual (market-based) alternative uses of wetlands is developed, based upon the notion of rational decision-making by individual landowners. The first step is the construction of a dynamic optimization model of forestry and agricultural production at the individual, landowner level. The model is solved via control theoretic techniques, yielding necessary conditions for conversion of forests to agricultural production and for abandonment of cropland. An explicit model of the heterogeneity of land allows for the aggregation of the respective necessary conditions, so that a comprehensive and econometrically estimatable model of land use is specified.
