AGRICULTURAL LAND PROTECTION:
IS GOVERNMENT INTERVENTION
- WARRANTED?
Asthis century nears its end, as demands for food and competition
for land accelerate, the most importaut question to face our nation
may well be: I-low can we direct urban development to less pmductive
acres, and thereby protect our irreplaceable prime farm land
acres from further encroachment?’
The National Agricultural Lands Study (NALS) is just one among
many recent works expressing concern about the loss of prime agricultural
land. Recent studies by the Council on Agricultural Science
and Technology (CAST) show that land markets are not working
properly and that the conversion of cropland to nonagricultnral uses
poses a major threat to future agricultural production.2 During the
past decade, an increasing number of individuals and organizations
have suggested that land resources are too important to be left to the
“whims of market forces.” According to this view, there should be a
shift from private ownership to social or political control of land nse.
Gordon Bjork, for example, suggests in his 1980 book, Life, Liberty,
and Property, that planning policies should be instituted at the federal
level to estimate the derived, demand for agricultural land for 25
to 50 years into the future, with steps taken to ensure its availability.
A similar conclusion was reached in the NALS.
---, vol. 2, No, 3 (Winter 1982). Copyi-ight © Cato Institute. Al] rights
reserved.
The author is Professor of Economics at North Carolina State University, Raleigh
27650
‘National Agricultural Lands Study (NALS), Where Have the Farmlands Cone? (Washington,
D.C.: Government Printing Office, 1979), p. 2.
2
Couneil for Agricultural Science and Technology (CAST), Preserving Agricultural
Land: Issues ood Policy Alternatives, Report no.90 (Ames, Iowa: CAST, 1981); CAST,
Soil Erosion: Its Agricultural, Environmental, and Socioeconomic Implications, Report
no.
9
2 (Ames, Iowa: CAST, 1982),
739
---
It is the thesis of this paper that the adoption of nonmarket measures
to restrict the conversion of agricultural land to urban uses is
likely tQ be counterproductive. There is a great deal of confusion
both abOut the nature of the alleged problems and about the effects
of the remedies proposed to deal with them. Specifically, the objectives
of this paper are; to discuss the rationale for protecting agricultural
land; to discuss the nature and effects of various programs
proposed to protect agricultural land; to stress the inherent information
and incentive problems in implementing all nonmarket landuse
controls; and to show that the market is unique in its ability to
allocate land to agricultural and other uses in a way that conforms
most closely to present and future demands for land services.
A brief discussion of commonly cited reasons for protecting agricultural
land will be followed by an analysis of market failure as a
basis for government intervention in land markets. Various land-use
control programs will be briefly described and analyzed in terms of
their effectiveness in protecting agricultural land and the extent to
which the programs are likely to increase the efficiency of land use.
The paper concludes that increasing the role of government in landuse
planning is likely to exacerbate rather than reduce land-use
conflicts.
Rationale for Protecting Agricultural Lands
Several reasons are cited for protecting agricultural lands.3 First,
it is held that agricultural land must be protected to ensure production
of sufficient food and fiber to meet the requirements ofa growing
national and world population. In some eases, it is argued, land
should be protected to ensure the continuation of agricultural production
in particular geographical regions. In this view, even if agricultural
land is not required today, it will be required tomorrow.4
Thus, we should maintain the option of using the land in agriculture
at a later time.
Second, there are beneficial spillover effects (environmental
amenities) associated with open space. And it is held that unfettered
‘B. Delworth Gardner, “Allocating Agricultural Land via the Market versus Prime Land
Zoning,” paper presented at a conference on “Agricultural Land Prcservatio,,: Economics
or Politics,” Political Economy Research Center, Bozeman, Montana, December
2—6, 1981.
4
Sce William Fischel, “Urban Development and Agricultural Land Markets: Why We
Are Not R~mningOut of Pannianri,” paper presented at a conference on “Agricultural
Land Preservation: Economics or Politics,” Political Economy Research Center, l3ozeman,
Montana, Dcce,nhcr2—6, 1981, p.3.
740
AGRICULTURAL LAND PROTECTION
land markets will not retain enough land in agriculture and other
open space uses.5
Third, protecting agricultural land is deemed necessary to ensure
more orderly urban development. Agricultural zoning is suggested
as one way to increase land-use efficiency .by protecting farming
operations against nuisance suits and piecemeal residential development.
6
Finally, protecting agricultural land is justified on the basis of the
local economic benefits that derive from a viable agricultural industry.
In analyzing the benefits of land-use planning in Wilson County,
North Carolina, for example, a recent study concludes: “The importance
of agriculture and agribusiness to the economy of an area is
one of the major issues in land-use planning for rural areas,”7
Arguments that agricultural land should be protected beyond the
level dictated by market forces are often considered with reference
to prime agricultural land; that is, land that is now highly productive
of crops. Prime agi-icultural land, however, cannot be identified solely
on the basis of physical conditions; other factors, including incidence
of disease and proximity to markets or to processing facilities, must
also be considered.8
What is happening to agricultural land? Controversy surrounds
both the facts and their implications. The NALS concluded that in
recent years, three million acres of agricultural land in the United
States were converted annually to other uses.9 Such data on the
overall agricultural land base, including pastureland, rangeland, and
forestland, however, tell virtually nothing about losses of cropland.’°
Luttrell demonstrates that the amount of cropland varies over time
according to the relative demand for farm products. Moreover, contrary
to the tone of the NALS, acreage of cropland harvested in the
5
J.C. Hite and B.L. Dillman, “Protection ofAgricultural Land: An Institutionalist Perspective,”
Southern Journal ofAgri cultural Economics 13 (1981): 43—53.
°RohertH. Nelson, “Agricultural Zoning! A Study in the Purposes, Consequences, and
Alternatives to Zoning,” paper presented at a conference on ‘Agricultural Land Preservation:
Economics or Politics,” Political Economy Research Center, Bozeman, Montana,
December 2—6, 1981.
Paul S. Stone and Leon E. Danielson, Land Use and Development in Rural Wilson
County, Center for Rural Resource Development Report no. 1 (Raleigh: North Carolina
Agricultural Extension Service, 1976), p. v.
8
Gardner.
3
National Agricultural Lands Study (NALS), Final Report (Washingtou, D.C.: Government
Printing Office, 1981), p. 82.
‘9’he accuracy of the three million figure—three times the historical rate—has been
seriously challenged by Simon and others. See Julian L. Simon, “Are We Losing Our
FarmlandP” The Public Interest 67 (1982): 49—62.
741
---
United States increased dramatically from 1970 to 1980 in response
to product price increases.’1 There is little, if any, basis for fearing
that a general decline in U.S. farmland will cause a crisis in food
production.
A significant reduction in cropland and other farmland often does
occur at the county level in rapidly urbanizing areas. Even foi’ geographical
areas where the magnitude of the conversion of land is not
in question, however, projections of current trends are likely to lead
to wrong conclusions. As Mark Twain demonstrated in analyzing the
fact that in the space of 176 years the lower Mississippi shortened
itself 242 miles, or about one half mile per year, “any person can see
that in 742 years from now the lower Mississippi will be only a mile
and¾long and Cairo and New Orleans will havejoined their streets
together. . . . There is something fascinating about science. One gets
such wholesale returns of conjecture out of such a trifling investment
of fact. “ 12
The important question with regard to soil losses or conversion of
land to other uses concerns the significance of the data rather than
the trends. There are geographical areas in which eroplandand other
farmland are being rapidly converted to nonfarm uses. Under what
conditions is governmental intervention warranted? The NALS and
CAST studies imply that the market process does not efficiently
protect land resources. The key issue is not how many tons of soil
are lost or whether one million or three million acres of agricultural
land are being converted to urban uses each year. The basic issue
concerns the relative merits of market versus nonmarket approaches
in protecting soil quality and in achieving an efficient allocation of
land resources for agricultural and other uses.
‘‘Clifton B. Luttrell, “Our ‘Shrinking’ Farmland: Potential Crisis?”, paper presented
at a conference On “Agricultural Land Preservation: Economics or Politics,” Political
Economy Research Center, Bozeman, Montana, Deeensber 2—6, 1981, p. 12.
‘
2
MarkTwain, The Family Mork Twain (New York: Harper and Brothers, 1935), p. 87.
Trend projections also lead to erroneous implications in the ease oferosion. The recent
CAST analysis of soil erosion states that the average annual loss of U.S. cropland by
erosion is about five tolls per acre, (See CAST, Soil Erosion, p. 14.) In and of itself, this
fact does not warrant the conclusion that there is an erosion problem. (See CAST,
Preserving Agricultural Land,) In fact, an analysis of national soil erosion surveys in
1934 and 1977 provides no support for the dire pronouncements that soil erosion has
gone from had to worse. In comparing these survey results, Mayer concludes that the
nation’s soil resources have vastly improved over the past half century. See T.W.
Schultz, “The Dynamics of Soil Erosion in the United States: ACritical View,” paper
for a conference on “Soil Conservation,” Agricultural Council ofAmerica, washington,
D.C., March 17, 1982; and Leo V. Mayer, “Farm Exports and Soil Conservation,” Food
Policy and Earns Programs, ed. by Don F, Hadwigcr and Ross B. Talbot, Proceedings
oftheAcademr, of Political Science 34(1982): 99—111.
742
AGRICULTURAL LAND PROTECTION
Market Failure
The traditional view of welfare economics is that the land market
is efficient ifperfect competition prevails. Market failure in land (and
other) markets is said to occur to the extent that markets do not
conlbrm to the norm of perfect competition. Perfect competition
requires price-taking behavior and perfect markets, which means
perfect communication, instantaneous equilibrium, and costless
transactions.’3 Since these conditions are never attainable, the market
failure result is inevitable when real-world land markets are compared
with the perfect competifion norm. Let us consider some alleged
cases of market failure in land markets.
Monopoly and Speculation
Market failure stemming from imperfect competition is inevitable
when a downward sloping demand curve is identified with monopoly
and taken to be primafacie evidence ofresource misallocation. There
are at least two problems in branding all sellers who face less than
perfectly elastic demand curves as socially harmful monopolists:
First, many sellers clearly operating under eonipetitive conditions,
including the 10-year-old operator ofa lemonade stand, will he classified
as monopolists. Second, the welfare consequences of short-run
entrepreneurial profits cannot be appraised strictly in terms of the
immediate allocation of resources.’4 A producer facing competitive
conditions in the longer run may he able to achieve above normal
returns in the short run through early entrepreneurial alertness. A
theory and a social policy that hold and act as though these short-run
gains are unearned monopoly rents will inevitably discourage entrepreneurial
alertness in the future.”
Speculation in land markets is often considered socially wastel’ul,
even by people who appreciate the merits of speculation in other
areas. The argument is made that while investments in steel mills,
‘
3
jack Hirshleifer, Price Theory and Applications, 2d ed. (Englewood ClilTh, N.J.:
Prentice Hall, 1980), p. 234. 4
lsrael M. Kirzner, Competition and Entrepreneurship (Chicago: University of Chicago
Press, 1972).
“The erroneous labeling ofentrepresseurial returns as unears,ed rents is a direct result
of the use of long—run equilibrium theory in measuring the welfare cost of monopoly.
The equilibrium model In isinterprets anrl ignores the lisncti on of profits and losses in
the real world market process. Entrepreneurial profits are taken to represent social
waste, since there is no role for entrepreneurship in long’run equilibrium. In real world
snarkets, however, where decisions of market participants never perfectly dovetail,
there is always scope and neerl for entrepreneurial activity. See S.C. Littleehild, ‘‘Misleading
Calculations of the Social Costs of Monopoly Power,” The Economic Journal
91(1981): 348—63.
743
---
grocery stores, and oil wells are necessary if their services are to be
made available, land will be there whether anyone owns it or not.
Accordingly, a recent economic analysis of land markets holds that
“any long run investment in land is sterile from a social perspective,
and any positive profits obtained from long-run land ownership are
excessive, unnecessary costs to society.”°
This criticism of speculators is rooted in the model of perfect
competition where there is perfect knowledge and, consequently,
no scope for entrepreneurship or speculation.’7 Real-world decision
makers, however, are always faced with uncertainty and imperfect
knowledge; in reality, all economic activity outside the stationary
state involves speculation.” Thus, speculation in the competitive
market process involves the discovery of information that is merely
assumed in the perfect competition model.’°When the uncertainty
and imperfect knowledge of land markets are taken into account, the
role of land speculators is no less beneficial (or different from) that
of speculators in other markets.
Externalities
Spillover problems, like monopoly problems, appear to be pervasive
when land markets are measured against the optimality conditions
of the competitive norm.2°A spillover occurs when an action
by one person infringes on the property rights of another. The mere
presence of a spillover effect, however, does not imply that there is
a spillover problem. In order for a problem to exist, there must be
incomplete compensation and the benefits of internalization must
exceed the costs.
“James C. Rite, Room and Situation: The Political Economy of Land-Use Policy
(Chicago: Nelson-Hall, 1979), p. 73.
“Notice how uncertainty, information problems, and transaction costs are implicitly
assumed away in the following description ofland speculation: “The new speculation
on the urban fringe is generally associated with much wasteful land use. . , Speculators
purchase land from farmers, but having neither the interest in nor aptitude for farming,
the speculators are apt to allow the land to lie fallow. In some cases, the land may be
leased to farmers for agricultural use, hut such leases may prevent speculators from
selling out ata l,,crative price in the middle ofthc growing season, Hence, the relatively
small amount of income to be obtained from such a lease may not be sufficient to
warrant foregoing opportunities for resale... The speculator, snare often than not, is
content merely to let the land ripen, i.e., let its price increase, without trying to use the
land during the interim,,..” See ibid., pp. 63—64.
“Ludwig von Mises, Socialism (London: Jonathan Cape, 1951).
“Dominick Armentano, Antitrust and Monopoly: Anatomy of a Policy Failure (New
York: John Wiley, 1982).
25
5ee John Burton, “Externalities, Property Rights and Public Policy: Private Property
Rights or the Spoilation of Nature,” in N.S. Cheung, ed., The Myth of Social Cost,
Hobart Paper 82 (London: The Institute of Economic Affairs, 1973), p. 74.
744
AGRICULTURAL LAND PROTECTION
Externalities will remain if there are transaction costs; if there are
no costs associated with negotiating, concluding, and enforcing contracts,
all spillovers will be internalized to the extent that the benefits
exceed the costs. Jf the cost of internalizing a side-effect exceeds the
benefits, the spillovers may be said to be optimal. Thus, once transaction
costs are included in the constraints on individual and governmental
behavior, it cannot be shown analytically that any particular
spillover represents a deviation from an attainable optimum.”
That is, once the constraints in the form of technology, tastes, information,
transaction cost, and so forth have been specified, the logic
of the framework must lead to an optimal outcome.’2 Specifically, if
the constraints are descriptive of real world conditions in the case of
a particular land market, it cannot be demonstrated that the existing
pattern of land use is nonoptimal given those constraints.
In the traditional Pigouvian approach to welfare economics, a difference
between private and social cost is simply postulated. It is
notshown that another method can decrease the costs ofinternalizing
spillover effects when contrasted with contracting through market
exchange. It is merely asserted that people do not take into account
the total effect of their actions.’3 If costs cannot be reduced by governmental
intervention or some other arrangement, there is no basis
for contending that social cost exceeds private cost.24 In summary,
when one takes into account transaction costs and the information
and incentive effects that are inherent in all nonmarket allocation
procedures, it cannot be demonstrated empirically that externalities
associated with land use are “inefficient,” i.e., constitute a deviation
from an attainable optimum. Indeed, at the attainable optimum, any
attempt to further reduce negative externalities will he inefficient;
the marginal value of the resources used to further reduce external
costs will be more highly valued elsewhere by consumers.
Uncertainty and Option Value
Because of major uncertainties about future conversion of farmland
to nonfarm uses, possible long-run climate changes, future trends in
agricultural productivity, and future water and energy supplies and
“Carl J. Dahlman, “The Problem of Externality,” Journal of Law and Economic.s 22
(1979): 154.
“See ibid., p. 153.
‘~Ibid.,p. 154. 24
Aside horn this problem with the Pigouvian approach, opportunity cost (the value of
the best sacrificed alternative) is inherently subjective and cannot be measured by
outside observers. See E.C. Pasour Jr., “The Economics of Natural Resources: An
Austrian Perspective,” paper presented at a conference on “The New Resource Economics,”
Political Economy Research Center, Bozeman, Montana, June 10—13, 1982.
745
---
costs, it is alleged that “preserving farmland for the future is like
buying an insurance policy to provide for future contingencies.”5
This idea is closely related to the concept of option demand, which
concerns the willingness to pay for retaining the option to use a
resource that would be difficult or impossible to replace and for
which no close substitute is available.’6 The option demand concept
in the context of this paper implies that the appropriate social rate of
time preference to he used in determining the present value of
farmland is lower than the market interest ~ The same problems
arise in identifying examples of option demand, however, as for all
other externalities associated with land use. A differenCe between
the market interest rate and the social rate of time preference is
merely asserted, but it is not shown that such a difference exists.’8
Moreover, when information, incentives, and transaction costs are
taken into account, it cannot be shown that the social rate of discount
for agricultural land is lower than the market rate.
The idea that farmland should he preserved through nonmarket
means because of uncertainty ignores the advantage ofdecentralized
markets in dealing with uncertainty. Uncertainty and constantly
changing conditions pose problems for central direction, since no
way has been thund to coordinate and transmit information as fully
as is done through market prices. In addition to information problems,
there are incentive problems, which inevitably affect the
implementation of all nonmarket land-use controls. Before discussing
implementation problems inherent in all nonmarket land-use
controls, several programs proposed to protect agricultural land use
will he described.
Land-Use Controls
During the past decade, a number ofmeasures havebeen proposed
or instituted to affect agricultural land-use patterns. The programs
may be classified as either voluntary, operating through economic
incentives, or involuntary, involving regulation. Several incentive
programs have been designed, at least in part, to protect agricultural
land. Some 45 states have now enacted agricultural use-value taxation
for farm and forest lands, legislation that permits qualifying agricul-
“CAST, Preserving Agricultural Land, p. 1.
“V. Kerry Smith, “Option Val,,e: A Conceptual Overview,” mimeograph (Chapel Hill:
University of North Carolina, 1982).
“Cohn Price,”To the Future: With Indifference or Concern? The Social Discount Rate
and Its Implications i’s Land Usc,”Journal of Agricultural Econon,ics 24 (1973): 396—
97’
“See Pierre Crosson, “A Shortage of Agricultural Land,” 11FF Resources, 1982, p.9.
746
AGRICULTURAL LAND PROTECTION
tural and forestry lands to be assessed for property tax purposes on
the basis of present use value instead of market value. The implementation
of use-value legislation faces theoretical as well as practical
problems.
Market-value and income approaches are used in implementing
use-value legislation. In the market-value approach, data on recent
sales of agricultural land, with little urban influence, in the same
county are used to estimate use value. In counties with large urban
centers, there is likely to he no agricultural land where price is not
affected by urban influences. In cases where market values of all
laud are influenced by nonagricultural factors, sales data are not
useful in determining agricultural use values. An alternative is to use
the income approach, which requires estimates of net income per
acre over time and the capitalization rate. Since there is a great deal
of subjectivity in estimating future income and in selecting the capitalization
rate, use values will be differently estimated by different
people. Consequently, there is no way to avoid a high degree of
subjectivity in making use-value estimates, since expectations about
future income and discount rates will vary.’0
Fee simple purchase, including public land banking, is also proposed
as a way to protect agricultural land. In this approach, local
and state governments might purchase lands either to provide environmental
amenities associated with open space or to keep land in
food production.3°Land banking is not usually proposed as a way to
protect land but rather to restrain land price increases through the
“elimination of speculative profits.”3’ There is no way to avoid speculation
in a world ofuncertainty; and when incentive and information
problems associated with governmental activity are taken into account,
public land banking is more likely to increase land prices.3’
Instead of purchasing agricultural land in fee simple, the farmer
might retain title to the land while local and state governments
purchase only the rights to develop land for nonfarm purposes.33 If
nEC. Pasour, Jr., “Estimating Agricultural Use Values in New York State: Comment,”
Land Economics 55 (1979): 405—407.
30
Fischel points out that concern in the NALS Final Report is focused on the adequacy
offuture food and fiher production. “Curiously enough the amenity values of farmland
are hardly mentioned.” See Fisehel, p. 3.
35
Jack Carr and Lawrence B, Smith, “Public Land Banking and the Price of Land,”
Land Economics 51(1975): 316—30.
32
E,C. Pasour, Jr., “Public Land Banking and the Price of Land: Comment,” Land
Economics 52 (1976): 553—64.
33
Leon F. Danielson, Land-Use Planning in Euro] Areas: Policy Alternatioes, Center
for Rural Resou,’ee Development Report no. 10 (Raleigh: North Carolina Agricultural
Extension Service, 1978).
747
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the power of eminent domain is used in the case of fee simple
purchase or purchase of development rights, of course, participation
is no longer achieved through economic incentives.
The creation of agricultural districts is still another means used to
protect farming operations and provide economic incentives to preserve
farmland. New York’s Agricultural Districts Law, enacted in
1971, for example, grants tax relief and discourages urbanization
through restrictions on eminent domain and local government ordinances
that affect agriculture.34 The property ownerretains the option
to sell his land at any time he chooses. While participation in the
New York program is voluntary, a similar Wisconsin program initiated
in 1977 is voluntary at the county level but not for the individual
landowner.
The zoning ordinance remains the most common means of implementing
land-use plans in the urban l’ringe35 and has often been
imposed to preserve open space, to manage growth, and so on.3°
Agricultural zoning, an involuntary regulation proposed to protect
agricultural land &om the standpoint of food supply, incompatible
uses, or both, may be either exclusive or cumulative.3’ In an exclusive
agricultural zone, agriculture and its related farm buildings are the
only uses allowed.38 Under cumulative zoning, both agricultural and
nonfarm residences are permitted. There is a long history ofpolitical
failure arid corruption associated with zoning where approval for
zoning changes is secured through political influence and payoffs.3°
In view of this, it is ironic that agricultural zoning is now proposed
as a measure that “would significantly improve the efficiency of land
use in farming areas.”4°
Evaluation
Of the two important questions concerning the effects of land-use
controls, most agricultural economists have focused on the first: Are
the controls effective in protecting agricultural land? In the case of
use-value taxation, the qualifying landowner often obtains a significant
reduction in taxes, but use-value legislation has had little effect
~1bid.
“Ibid.
~Nelson
31
See ibid., p. 1.
~Danielson.
~John A. Cardiner and T.R. Lyman, Decisions for Sale: Corruption and Reform In
Land-Use and Building Regulation (New York: Praeger, 1978).
40
Nelson. p. 44. See also David Ervin et al., Land Use Control: Evaluating Economic
and Politicol Effects (Cambridge, Mass,: Ballinger, 1977), p. 100.
748
AGRICULTURAL LAND PROTECTION
on the conversion of agricultural land to nonagricultural uses.4’ Usevalue
taxation does decrease the cost of holding land in agriculture,
especially in rapidly urbanizing areas. In such areas, however, potential
gains from development are likely to swamp any tax advantages
there may be in keeping land in agriculture. Thus, measures that are
effective in retaining land in agriculture are likely to necessitate
either involuntary controls or higher taxes for the non-farm population.
Incentive programs, such as fee simple purchase, public land
banking, and purchase of development rights can be effective in
protecting land but involve a high, direct taxpayer cost.4’
A second, more basic question about land-use controls to protect
agricultural land has been largely neglected: Are such programs
beneficial? If the government wishes to protect farmland or open
space, an incentive program is clearly preferable to involuntary controls,
since willingness to incur the required expenditures provides
a test of the value placed on retaining farmland or open space. If, for
example, open space is obtained through zoning and the cost is borne
by owners of the zoned land, the demand for environmental amenities
will be overstated. A more important issue, however, concerns
the desirability of protecting agricultural land. Nelson suggests that
agricultural zoning is beneficial since it can extend the life offarming
in a region.43 Fischel describes “right to farm” legislation as a “sensible
approach” in protecting farmers from nuisance suits or other
controls designed to restrict farm operations.44
The conclusion that zoning and other measures should be used to
protect agricultural land ignores an important question: What is the
“optimal” amount of land in agriculture? Nelson recommends “widespread
adoption of agricultural zoning along with other features of
agricultural districting” for farmland near metropolitan areas as a
way to “maintain the existing farming way of life against threats of
piecemeal residential inh’usion.”45 Proposals to “protect agriculture
from premature conflicts with residential uses” raise a number of
questions: How does one define and identify cases of premature
conflicts? At what point is the competition ofland for non-agricultural
uses not premature? Does the fact that a group of farmers desire to
continue farming meanthat the efficiency of land use will be increased
if agricultural districts, zoning, or other measures are used to keep
42
Taxpayer cost is higher, ofcourse, in the case offee simple purchase than where only
development rights are purchased.
43
Nelson, p. 12.
“Fischel, p. 19.
43
Nelson, p. 15.
749
---
land in agriculture? How does one ensure that regulations will not
be used to keep land in agriculture when it has a higher value in
other uses? Justifying the protection of agricultural land on the basis
of local economic benefits ignores the fact that a tract of farmland is
converted to nonfarm use only when its expected value in other use
exceeds its agricultural value.
Zoning classifications can be conceived of as involving either permanent
or transitional categories of use. A case can be made for
transitional zoning as a way of minimizing land-use conflicts when
incentive and information problems are minimized or ignored. However,
agricultural zoning is now being recommended as a permanent
rather than a transitional category of use, which means that it is
designed to prevent converting land to other uses regardless of cost,
Fischel suggests that the real forces behind the farmland preservation
movement are local anti-development interests: “...zoning for farms
appears to be a means by which initial nonfarmer immigrants effectively
‘pull up the gangplank’ to keep subsequent immigrants out.”4°
Consequently, one cannot be confident that zoning originally conceived
of as involving transitional categories of use will not become
permanent zoning. At any rate, in evaluating the likelihood that
nonmarket land-use controls will improve the efficiency of land use,
it is important to take implementation problems into account.4’
Implementation Problems
When real world political processes are compared with an ideal
polity norm, government failure is as inevitable as is market failure
in comparing real world markets with the perfect competition norm.
Thus, finding market failure does not warrant government intervention
unless it can be demonstrated that the outcome will be superior,
given the inevitability of government failure. In evaluating the likelihood
that nonmarket approaches will improve the efficiency ofland
use, first consider the information and incentive problems endemic
in central direction.
Information Problems
The basic economic problem in the context ofthis paper is to secure
the best use of land resources utilizing the knowledge of all members
of society for ends whose relative importance only these individuals
16
Fiseliel, p. 22. See also Ervin et al., pp. 161—62.
47
Charles Wolf, Jr., “A Theory of Nonmarket Failure: Framework for Implementation,
Journal of Law and Economics 22 (197W: 107—40.
750
AGRICULTURAL LAND PROTECTION
know.48 Market prices of’ land coordinate and transmit widely dispersed
information more effectively than is possible through any
other known method. Moreover, the factors that cause land prices to
increase or decrease and thereby guide the behavior of decision
makers are influences that would need to be taken into account in
any conceivable system ofcoordinated economicactivity.49 Increased
demand for land in housing, golf courses, and other uses is transmitted
through the price system and reflected in higher prices paid for
such land. The information influencing choices by buyers and sellers
of land is decentralized and cannot be objectively determined except
as revealed by the actions of market participants.59 Thus, there is
inevitably a loss of valuable information when land price signals are
suppressed or overridden by zoning and other land-use controls.
Moreover, the profit motive gives private entrepreneurs an incentive
to discover new opportunities for satisfying consumer preferences,
which makes land markets very responsive to ever-changing circumstances.
51 Land use planning through nonmarket methods, on the
other hand, cannot readily adapt to change.52
What are the implications of viewing the market as an information
and discovery process? Von Mises and Hayek demonstrate in the
“economic calculation debate” that market prices are necessary in
achieving efficient resource use.53The importance ofthe price system
in coordinating and transmitting information, however, is ignored by
most advocates of land-use planning. There is a failure to recognize
the information problems that are inherent in all nonmarket allocation
procedures. In proposals to institute “comprehensive land-use
planning,” for example, land classification is often suggested as a
means of allocating land to various uses. A proposed land policy
program for North Carolina recommends that all land in the state be
classified on a county-by-county basis into one offive different classes:
45F.A. Hayek, Individualism and Economic Order (Chicago: University of Chicago
Press, 1948).
49
David Ramsay Steele, “Posing the Problem: The Impossibility of Economic Calculation
Under Socialis,n,” Journal ofLibertarian Studies 5 (1981): 7—22.
‘°SeeThomas SoweR, Knowledge and Decitions (New York: Basic Books, 1980), pp.
217—18.
51F.A. Hayek, New Studies in Philosophy, Politics, Economics and the History of Ideas
(Chicago: University of Chicago Press, 1978), p. 236.
‘2E.C, Pasour, Jr., “Preserving Agricultural Land: Lessons from the Economic Calculation
Dehate,’ paper presented at a conference on “Agricultural Land Preservation:
Economics or Polities,” Political Economy Research Center, Bozensan, Montana, June
10—13, 1982.
~Karen I. Vanghn, “Economic Calculation Under Socialism; The Austrian Contribution,”
Economic Inquiry 18 (1980): 535—54.
751
---
developed, transition, community, rural, and conservation.54 Preservation
of “good agricultural land” is a m~orfocus of the program,
and it is recommended that local land classification plans should
discourage urban development on prime agricultural lands except
when no other alternative exists. Prime agricultural land, however,
is quite often even move productive in nonagricultural uses. Moreover,
alternatives are always available at some location, Thus, land
classification is not a realistic alternative to market prices in resource
allocation. The “comprehensive land-use planning” movement fails
to recognize that, aside from the market, there is no objective procedure
to determine which land parcels to retain in agricultural and
other uses either now or in the future.
Information problems also arise in attempts to wanda~optimal
conservation practices. Conservation is an investment problem and
should he judged by criteria similar to those used in evaluating other
investments. Profitable management and conservation practices can
be determined only by comparing the expected costs and benefits of
these practices. Moreover, since costs and benefits occur over time,
there is no reason to expect the evaluation of’a particular conservation
measure by an outside observer to correspond to that of the decision
maker under real world conditions of uncertainty.55 In evaluating
investments in conservation measures, the economist has no objective
procedure (aside from the survivor principle) to identify inefficient
resource use. Thus, attempts to determine and mandate optimal
levels of soil conservation face the same problems as other attempts
to second-guess real world decision makers,56
Incentive Problems
Political problems also arise in instituting nonmarket land-use
controls because of perverse incentives. First, when compared with
the market, the political process is short-run oriented, since the political
decision maker’s power is frequently determined by the results
of the next election.
Second, the incentive structure ofgovernment is such that the seIlL
interest ofthe political decision makerdictates that he “play it safe.”
Decision makers in the private sector, receiving the benefits of good
91
Novth Carolina Laud Policy ConnciS (NCLPC), A Land Rcsources Program for North
Carolina (Ra!eig!3: NCI YC, 1976).
55
For a vivid description ni the subjectivity associated with i nvcstments in equipment,
see G.L.S. Shackle, Epistemics ond Economics (London: Cambridge University Press,
1972), pp. 18—19.
~EC Pasour, Jr., “Conservation, ‘X-Efflciency’ and Ellieient Use of Natural Resources,”
Jon rnol of Liheriarioa S Indies 4 (1979): 371—90.
752
AGRICULTURAL LAND PROTECTION
decisions and bearing the costs of poor ones, have an incentive to
use resources most effectively to accommodate consumer desires. In
the case of government bureaucracy, where the payoff from a risky
course of action does not accrue to the decision maker whereas the
cost does, there isa strong incentive to avoid risk. This factor is likely
to be important in changing zoning regulations and other land-use
controls that once were instituted regardless of any potential increase
in economic efficiency associated with change.
Third, in addition to the possibility of government failure in the
implementation of land-use controls, such controls may also distort
market behavior by affecting the decisions of landowners, anti-growth
advocates, and other individuals. Regulation creates an incentive for
landowners to obtain tax, subsidy, or regulatory favors rather than
focusing on cost-saving methods of production. Agricultural zoning
that prevents or restricts the conversion ofagricultural land, for example,
generates countermeasures, including landowners lobbying
through farm organizations, hiring lawyers to find loopholes, and so
on. Generally, an individual must act as part ofan organized pressure
group to be effective on an issue decided through the political process.
Fourth, although land-use planning through the political process
is presumably based on widespread citizen participation, any landuse
plan must be carried out by government officials, Decisions are
reached through a political process dominated by special interest
groups with narrow interests. When benefits or costs are highly concentrated,
particular land-use decisions are likely to he decided by
small groups. As a result, political decision makers are interested in
“biased samples” of preferences: “So long as those who govern are
held responsible by the governed through citizen participation, political
decision makers and participants will seek advantages through
the system by disadvantaging nonparticipants.”~7
Finally, governmental monitoring of activities relies on the cooperation
of those whose interests are markedly affected by any reforms
or changes that might be implied.SS Consider, for example, an analysis
of soil erosion by the Soil Conservation Service (SCS). How likely is
it that a study conducted by SCS personnel at the local, state, or
national level will conclude that there is a reduced need for conservation
measures or for reduced public expenditures and SCSperson-
~Ervin et al., p. 59. 58
John A. Baden and Richard L. Stroup, “The Environmental Costs of Governmental
Action,” Polinj Reeiew 4 (1978): 23—26.
753
---
nd? This problem is graphically described by Brewer and Boxley in
the case of the NALS:
Can special analyses of agricultural land adequacy . . . he assured
of objectivity? Many interested pat-ties have a stake in the conclusions
and recommendations of such inquiry, Payoff can be in the
form of expanded bureaucratic turf, larger budgets for particular
agencies, . . . or personal enhancement Absent a strong and
neutral oversight body to shield researchers ... their work is vulnerable
to influence, to misrepresentation in the public media, or
to being withheld entirely from the media.’°
In view of the incentive and information problems inherent in
nonmarket land-use controls, it can hardly be overemphasized that
the actual incidence of governmental failure must not he confused
with the incidence that would, occur if decision makers in government
were not constrained by information and incentive problems
in following the dictates of welfare economics.6°
Conclusions and Implications
The key issue in the case of land resources concerns the most
effective way of allocating land to agricultural and nonagricultural
uses. There are basically only two ways of planning land use: the
market process; and central planning involving local, state, or federally
administered land-use controls. Despite the widely acknowledged
merit of the market in facilitating efficient resource use and
material output, various measures are being proposed and implemented
to change the pattern of land use. Use-value taxation, fee
simple purchase, and purchase of development rights rely on financial
incentives to induce owners of agricultural land to retain more
land in agriculture. Nonvoluntary agricultural districts, agricultural
zoning, land classification, and other regulations represent a transfer
of decision-making authority fiom individuals to collective bodies.
There are two important questions concerning any land-use measure
intended to protect agricultural land, whether based on economic
incentives or regulations. First, will the measure achieve its
stated goal? A land-use control that effectively retains land in agriculture
will be costly in terms of tax revenue, or it must be involuntary.
Second, will measures to protect agricultural land increase the
efficiency of land use? Land shifts out of agriculture because it is
55
Michael F. Brewer and F. Boxley, ‘‘Agricultural Land: Adequacy ofAcres, Concepts,
and Inlbrination,” Ameflcan journal of Agricultural Economics 63 (1981): 886.
raAlan Peacock, “On the Anatomy ofCollective Failure,” PublicFinance 35(1980): 33—
43.
754
AGRICULTURAL LAND PROTECTION
economically more productive in other uses. Since the difference in
the value of land converted from agricultural to nonagricultural uses
is often quite high, a significant reduction in the conversion of agricultural
land has a high opportunity cost.61
The theoretical foundation of nonmarket land-use controls is deficient
in the sense that no way has been found to rationally allocate
land to various uses through central economic planning due to the
separation of knowledge and power. If the knowledge of market
participants is consciously ignored, what criteria are to be used in
land-use decisions? When information and incentive problems are
considered, there is no basis for thinking that a more efficient pattern
of land use can be achieved through central planning as suggested
in the NALS: “The goals of protecting agricultural land and guiding
urban growth are best achieved in combination with a comprehensive
growth management system.”62 Yet, the failure to recognize the
inherent limitations of comprehensive land-use planning as revealed
by the “economic calculation debate” 50 years ago is not acknowledged
by many economists, including some specializing in the economics
ofland use.63 Raleigh Barlowe, a well-known land economist,
summarizes the requirements for a successful farmland protection
policy: “. .. official guidelines should be issued .. . indicating the
criteria that should be used to designate the area to be protected and
also the quota of acreage that should be protected in each region or
county.”TM
There are also incentive problems endemic tononmarket land-use
controls due to the separation of authority from the costs and returns
associated with various programs affecting land use. Even if the
person in authority could obtain the information necessary to act in
the public interest, the bureaucratic advantages ofincreased personnel
and budget favor actions by government officials that perpetuate
and increase controls regardless of their effects on land use.
°Crosson
°‘NALS Final Report, p. 18.
S
3
The implications of the von Mises-Hayek arguments were apparently not recognized
even at Chicago. Jo his recent discussion of the history and meaning of Chicago
economics, Reder makes the following statement about the appointment of Oscar
Lange, a central figure in the “economic calculation debate” and a leading proponent
of “market socialism”: “His work on the use of the prce system to allocate resources
in a socialist economy was widely considered to he a definitive answer to the Mises-
Hayek attack on the economic efficiency of socialism See Melvin W. Reder,
“Chicago Economics: Permanence and Change,” Journal of Economic Literature 20
(1982): 4. 54
Raleigh Barlowe, “Your Stake in a Land Use Policy.” in Pressing Land Use Issues,
MP415 (Columbia: Missouri Agricultural Extension Service, 1974), p. 2.
755
---
Conventional welfare theory suggests that agricultural land and
soil resources should be preserved beyond the level dictated by
market forces whenever there are spillovers.65 Market failure based
on the idealized perfect competition norm, however, offers no prima
facie case for political land-use controls. All institutions fall short
when judged against some ideal. When incentive and information
problems’ are taken into account, the problem of government failure
appears to be fully as important as market failure.66 The relevant
comparison is between real world markets and real world political
institutions.
Land use in ruTal areas of the United States has been largely
planned for 200 years without land-use controls. None of the reasons
commonly cited for governmental intervention to protect agricultural
land can withstand careful scrutiny. The success of American agriculture
is ample proof that farmers~~~recompetent entrepreneurs, and
there is no persuasive evidence that farmers shed their entrepreneurial
ability when improving and maintaining soil resources. Moreover,
since soil erosion is location specific, a nationally administered
soil eonsei’vaflon program that is politically designed to provide funds
and services to all geographic areas is bound to he a model of inefficiency.
67 Thus, whether in allocating land to various uses or in
maintaining soil resources, there is no persuasive evidence that overriding
market signals will be less damaging than political solutions
have been in energy, credit, labor, and other markets.
Spillover problems arise when government fails to define and
protect private property rights. Thus, the primary solution to spillover
problems associated with the use of land and other resources is to
clearly define property rights and make polluters legally responsible
for the consequences of their actions. In a land-use system where
property rightsare well-defined and legally protected, externalities
will he internalized.68 In the case of public lands in the American
West, there are “growing problems of overuse, overexploitation, and
mismanagement of these lands—all ofwhich derive from their essen-
‘
5
Tlse conventional Pigouvian approach to natural resource policy abstracts from inl’or’
matioi’ and i necntive problems and almost invariably concludes that intervention is
wanantcd. See )nhn Mclnerney, “Natural Resource Economics: The Basic Analytica’
Principles,” in J. A. Butlin, ed. Economics of Eneiron,nental and Natural Resources
Policy (Boulder, Cob.: Westview Press, 1981), p ‘54.
‘~SeeBruce L. Benson, ‘‘Land-Use Regulation: A Supply and Demand Analysis of
Changing Property Rights,”Journal of Libertarian Studies, lorthcoming, pp. 22—23.
h?Sehultz p. 17. See also Christopher K. Leman, ‘‘An Era (}f Limits,’’ 11FF Resources,
1982, p. 5.
°
8
BobertJ. Smith, “Privatizing the Environment,” Policy Reeiew 20(1982): 11—50.
756
AGRICULTURAL LAND PROTECTION
tially being a commons~~“6’3 Institutional changes to reduce property
rights conflicts and improve land use is an alternative to administrative
land-use controls. Privatization of agricultural land in the public
domain, including BLM and Forest Service lands~,would reduce the
mismanagement of these lands.
Farm versus nonfarm conflicts over noise, odors, and dust from
farm operations often arise when there is rapid nonfarm population
growth in rural areas. Agricultural nuisance suit legislation is one
approach to dealing with these conflicts. For example, North Carolina’s
legislation provides that agricultural operations will not legally
become a nuisance because of changed conditions in the locality if
the farm has been in operation for a specified period of time (e.g.,
more than one year) and if it is managed properly.7°Even in the case
of nuisance suit legislation, there is a question of whether it will
improve the overall efficiency of laud use.There would appear to he
no more reason for specific nuisance suit legislation in the case of
agriculture than for other industries giving rise to environmental
spillovers. In fact, the stated purpose ofthe North Carolina legislation
is not to reduce property rights conflicts hut to conserve and protect
agricultural land.”
In conclusion, the case for governmental intervention to protect
agricultural laud rests on two assumptions. First, it assumes that
spillovers are important in all or many land-use decisions, Second,
it assumes that spillovers fi-om land-use controls to correct for market
failure will be less than those that arise from voluntary decisions in
decentralized land markets. The result of governmental regulations
in a host of areas, including agricultural price supports, transportation,
communications, and education, has been to stifle competition,
increase consumer prices, and reduce the diversity of services offered.
In view of the information and incentive problems inherent in all
central planning, there is no reason to expect that the results of
governmental intervention to protect land and soil resources will he
different,72
6
Thid., p~35.
701f the farm was outside the corporate limits of a city on the day the law was enacted
(March 26, 1979), then all present or future local ordinances that would make the
operation a nuisance are null and void so long as the farm is properly managed and
without negligence. See Leon E. Darnelsou, North Carolina’s Agricultural Nuisance
Suit Law,AG~188(Raleigh: North Carolina Agricultural Extension Service, 1980).
71Ihid.
ThIn view of the conflicts and misuse of forest, range, and other lands in the puhlie
domain, it is ironicthat ‘‘comprehensive land—use planning,” ‘‘protection ofagricultural
land,” and other governmental measures are proposed to increase the efTieient use of
privately owned lands.
757
---
What is the role of the economist in agricultural land-use policy?
In assessing the effects of government intervention, the economist
should take a principled approach, evaluating every proposed landuse
control for its likely legal, political, social, and ethical repercussions.
73 In land use (as in other areas), the role of the economist is
not to determine the optimal pattern of land use on a local, state, or
national basis; a task which is clearly impossible, given the information
costs referred to in this paper. Instead, the economist qua
policymaker should attempt to identify and explain the institutional
framework necessary for individual decision-makers in land (and
other) markets to effectively cooperate in pursuing their own diverse
ends. It is also important to explain the inherent limitations of government
officials in their attempts “to do good” and to promote the
public interest whether in land use or in other areas.74
73
Leland B. Yeager, “Economies and Principles,” Southern EconomleJournal42(1976):
559—71.
“Richard B. McKenzie, Bound to Be Free (Stanford, CaliL: Hoover Institution Press,
1982), p. 173.
758
IS GOVERNMENT INTERVENTION
- WARRANTED?
Asthis century nears its end, as demands for food and competition
for land accelerate, the most importaut question to face our nation
may well be: I-low can we direct urban development to less pmductive
acres, and thereby protect our irreplaceable prime farm land
acres from further encroachment?’
The National Agricultural Lands Study (NALS) is just one among
many recent works expressing concern about the loss of prime agricultural
land. Recent studies by the Council on Agricultural Science
and Technology (CAST) show that land markets are not working
properly and that the conversion of cropland to nonagricultnral uses
poses a major threat to future agricultural production.2 During the
past decade, an increasing number of individuals and organizations
have suggested that land resources are too important to be left to the
“whims of market forces.” According to this view, there should be a
shift from private ownership to social or political control of land nse.
Gordon Bjork, for example, suggests in his 1980 book, Life, Liberty,
and Property, that planning policies should be instituted at the federal
level to estimate the derived, demand for agricultural land for 25
to 50 years into the future, with steps taken to ensure its availability.
A similar conclusion was reached in the NALS.
---, vol. 2, No, 3 (Winter 1982). Copyi-ight © Cato Institute. Al] rights
reserved.
The author is Professor of Economics at North Carolina State University, Raleigh
27650
‘National Agricultural Lands Study (NALS), Where Have the Farmlands Cone? (Washington,
D.C.: Government Printing Office, 1979), p. 2.
2
Couneil for Agricultural Science and Technology (CAST), Preserving Agricultural
Land: Issues ood Policy Alternatives, Report no.90 (Ames, Iowa: CAST, 1981); CAST,
Soil Erosion: Its Agricultural, Environmental, and Socioeconomic Implications, Report
no.
9
2 (Ames, Iowa: CAST, 1982),
739
---
It is the thesis of this paper that the adoption of nonmarket measures
to restrict the conversion of agricultural land to urban uses is
likely tQ be counterproductive. There is a great deal of confusion
both abOut the nature of the alleged problems and about the effects
of the remedies proposed to deal with them. Specifically, the objectives
of this paper are; to discuss the rationale for protecting agricultural
land; to discuss the nature and effects of various programs
proposed to protect agricultural land; to stress the inherent information
and incentive problems in implementing all nonmarket landuse
controls; and to show that the market is unique in its ability to
allocate land to agricultural and other uses in a way that conforms
most closely to present and future demands for land services.
A brief discussion of commonly cited reasons for protecting agricultural
land will be followed by an analysis of market failure as a
basis for government intervention in land markets. Various land-use
control programs will be briefly described and analyzed in terms of
their effectiveness in protecting agricultural land and the extent to
which the programs are likely to increase the efficiency of land use.
The paper concludes that increasing the role of government in landuse
planning is likely to exacerbate rather than reduce land-use
conflicts.
Rationale for Protecting Agricultural Lands
Several reasons are cited for protecting agricultural lands.3 First,
it is held that agricultural land must be protected to ensure production
of sufficient food and fiber to meet the requirements ofa growing
national and world population. In some eases, it is argued, land
should be protected to ensure the continuation of agricultural production
in particular geographical regions. In this view, even if agricultural
land is not required today, it will be required tomorrow.4
Thus, we should maintain the option of using the land in agriculture
at a later time.
Second, there are beneficial spillover effects (environmental
amenities) associated with open space. And it is held that unfettered
‘B. Delworth Gardner, “Allocating Agricultural Land via the Market versus Prime Land
Zoning,” paper presented at a conference on “Agricultural Land Prcservatio,,: Economics
or Politics,” Political Economy Research Center, Bozeman, Montana, December
2—6, 1981.
4
Sce William Fischel, “Urban Development and Agricultural Land Markets: Why We
Are Not R~mningOut of Pannianri,” paper presented at a conference on “Agricultural
Land Preservation: Economics or Politics,” Political Economy Research Center, l3ozeman,
Montana, Dcce,nhcr2—6, 1981, p.3.
740
AGRICULTURAL LAND PROTECTION
land markets will not retain enough land in agriculture and other
open space uses.5
Third, protecting agricultural land is deemed necessary to ensure
more orderly urban development. Agricultural zoning is suggested
as one way to increase land-use efficiency .by protecting farming
operations against nuisance suits and piecemeal residential development.
6
Finally, protecting agricultural land is justified on the basis of the
local economic benefits that derive from a viable agricultural industry.
In analyzing the benefits of land-use planning in Wilson County,
North Carolina, for example, a recent study concludes: “The importance
of agriculture and agribusiness to the economy of an area is
one of the major issues in land-use planning for rural areas,”7
Arguments that agricultural land should be protected beyond the
level dictated by market forces are often considered with reference
to prime agricultural land; that is, land that is now highly productive
of crops. Prime agi-icultural land, however, cannot be identified solely
on the basis of physical conditions; other factors, including incidence
of disease and proximity to markets or to processing facilities, must
also be considered.8
What is happening to agricultural land? Controversy surrounds
both the facts and their implications. The NALS concluded that in
recent years, three million acres of agricultural land in the United
States were converted annually to other uses.9 Such data on the
overall agricultural land base, including pastureland, rangeland, and
forestland, however, tell virtually nothing about losses of cropland.’°
Luttrell demonstrates that the amount of cropland varies over time
according to the relative demand for farm products. Moreover, contrary
to the tone of the NALS, acreage of cropland harvested in the
5
J.C. Hite and B.L. Dillman, “Protection ofAgricultural Land: An Institutionalist Perspective,”
Southern Journal ofAgri cultural Economics 13 (1981): 43—53.
°RohertH. Nelson, “Agricultural Zoning! A Study in the Purposes, Consequences, and
Alternatives to Zoning,” paper presented at a conference on ‘Agricultural Land Preservation:
Economics or Politics,” Political Economy Research Center, Bozeman, Montana,
December 2—6, 1981.
Paul S. Stone and Leon E. Danielson, Land Use and Development in Rural Wilson
County, Center for Rural Resource Development Report no. 1 (Raleigh: North Carolina
Agricultural Extension Service, 1976), p. v.
8
Gardner.
3
National Agricultural Lands Study (NALS), Final Report (Washingtou, D.C.: Government
Printing Office, 1981), p. 82.
‘9’he accuracy of the three million figure—three times the historical rate—has been
seriously challenged by Simon and others. See Julian L. Simon, “Are We Losing Our
FarmlandP” The Public Interest 67 (1982): 49—62.
741
---
United States increased dramatically from 1970 to 1980 in response
to product price increases.’1 There is little, if any, basis for fearing
that a general decline in U.S. farmland will cause a crisis in food
production.
A significant reduction in cropland and other farmland often does
occur at the county level in rapidly urbanizing areas. Even foi’ geographical
areas where the magnitude of the conversion of land is not
in question, however, projections of current trends are likely to lead
to wrong conclusions. As Mark Twain demonstrated in analyzing the
fact that in the space of 176 years the lower Mississippi shortened
itself 242 miles, or about one half mile per year, “any person can see
that in 742 years from now the lower Mississippi will be only a mile
and¾long and Cairo and New Orleans will havejoined their streets
together. . . . There is something fascinating about science. One gets
such wholesale returns of conjecture out of such a trifling investment
of fact. “ 12
The important question with regard to soil losses or conversion of
land to other uses concerns the significance of the data rather than
the trends. There are geographical areas in which eroplandand other
farmland are being rapidly converted to nonfarm uses. Under what
conditions is governmental intervention warranted? The NALS and
CAST studies imply that the market process does not efficiently
protect land resources. The key issue is not how many tons of soil
are lost or whether one million or three million acres of agricultural
land are being converted to urban uses each year. The basic issue
concerns the relative merits of market versus nonmarket approaches
in protecting soil quality and in achieving an efficient allocation of
land resources for agricultural and other uses.
‘‘Clifton B. Luttrell, “Our ‘Shrinking’ Farmland: Potential Crisis?”, paper presented
at a conference On “Agricultural Land Preservation: Economics or Politics,” Political
Economy Research Center, Bozeman, Montana, Deeensber 2—6, 1981, p. 12.
‘
2
MarkTwain, The Family Mork Twain (New York: Harper and Brothers, 1935), p. 87.
Trend projections also lead to erroneous implications in the ease oferosion. The recent
CAST analysis of soil erosion states that the average annual loss of U.S. cropland by
erosion is about five tolls per acre, (See CAST, Soil Erosion, p. 14.) In and of itself, this
fact does not warrant the conclusion that there is an erosion problem. (See CAST,
Preserving Agricultural Land,) In fact, an analysis of national soil erosion surveys in
1934 and 1977 provides no support for the dire pronouncements that soil erosion has
gone from had to worse. In comparing these survey results, Mayer concludes that the
nation’s soil resources have vastly improved over the past half century. See T.W.
Schultz, “The Dynamics of Soil Erosion in the United States: ACritical View,” paper
for a conference on “Soil Conservation,” Agricultural Council ofAmerica, washington,
D.C., March 17, 1982; and Leo V. Mayer, “Farm Exports and Soil Conservation,” Food
Policy and Earns Programs, ed. by Don F, Hadwigcr and Ross B. Talbot, Proceedings
oftheAcademr, of Political Science 34(1982): 99—111.
742
AGRICULTURAL LAND PROTECTION
Market Failure
The traditional view of welfare economics is that the land market
is efficient ifperfect competition prevails. Market failure in land (and
other) markets is said to occur to the extent that markets do not
conlbrm to the norm of perfect competition. Perfect competition
requires price-taking behavior and perfect markets, which means
perfect communication, instantaneous equilibrium, and costless
transactions.’3 Since these conditions are never attainable, the market
failure result is inevitable when real-world land markets are compared
with the perfect competifion norm. Let us consider some alleged
cases of market failure in land markets.
Monopoly and Speculation
Market failure stemming from imperfect competition is inevitable
when a downward sloping demand curve is identified with monopoly
and taken to be primafacie evidence ofresource misallocation. There
are at least two problems in branding all sellers who face less than
perfectly elastic demand curves as socially harmful monopolists:
First, many sellers clearly operating under eonipetitive conditions,
including the 10-year-old operator ofa lemonade stand, will he classified
as monopolists. Second, the welfare consequences of short-run
entrepreneurial profits cannot be appraised strictly in terms of the
immediate allocation of resources.’4 A producer facing competitive
conditions in the longer run may he able to achieve above normal
returns in the short run through early entrepreneurial alertness. A
theory and a social policy that hold and act as though these short-run
gains are unearned monopoly rents will inevitably discourage entrepreneurial
alertness in the future.”
Speculation in land markets is often considered socially wastel’ul,
even by people who appreciate the merits of speculation in other
areas. The argument is made that while investments in steel mills,
‘
3
jack Hirshleifer, Price Theory and Applications, 2d ed. (Englewood ClilTh, N.J.:
Prentice Hall, 1980), p. 234. 4
lsrael M. Kirzner, Competition and Entrepreneurship (Chicago: University of Chicago
Press, 1972).
“The erroneous labeling ofentrepresseurial returns as unears,ed rents is a direct result
of the use of long—run equilibrium theory in measuring the welfare cost of monopoly.
The equilibrium model In isinterprets anrl ignores the lisncti on of profits and losses in
the real world market process. Entrepreneurial profits are taken to represent social
waste, since there is no role for entrepreneurship in long’run equilibrium. In real world
snarkets, however, where decisions of market participants never perfectly dovetail,
there is always scope and neerl for entrepreneurial activity. See S.C. Littleehild, ‘‘Misleading
Calculations of the Social Costs of Monopoly Power,” The Economic Journal
91(1981): 348—63.
743
---
grocery stores, and oil wells are necessary if their services are to be
made available, land will be there whether anyone owns it or not.
Accordingly, a recent economic analysis of land markets holds that
“any long run investment in land is sterile from a social perspective,
and any positive profits obtained from long-run land ownership are
excessive, unnecessary costs to society.”°
This criticism of speculators is rooted in the model of perfect
competition where there is perfect knowledge and, consequently,
no scope for entrepreneurship or speculation.’7 Real-world decision
makers, however, are always faced with uncertainty and imperfect
knowledge; in reality, all economic activity outside the stationary
state involves speculation.” Thus, speculation in the competitive
market process involves the discovery of information that is merely
assumed in the perfect competition model.’°When the uncertainty
and imperfect knowledge of land markets are taken into account, the
role of land speculators is no less beneficial (or different from) that
of speculators in other markets.
Externalities
Spillover problems, like monopoly problems, appear to be pervasive
when land markets are measured against the optimality conditions
of the competitive norm.2°A spillover occurs when an action
by one person infringes on the property rights of another. The mere
presence of a spillover effect, however, does not imply that there is
a spillover problem. In order for a problem to exist, there must be
incomplete compensation and the benefits of internalization must
exceed the costs.
“James C. Rite, Room and Situation: The Political Economy of Land-Use Policy
(Chicago: Nelson-Hall, 1979), p. 73.
“Notice how uncertainty, information problems, and transaction costs are implicitly
assumed away in the following description ofland speculation: “The new speculation
on the urban fringe is generally associated with much wasteful land use. . , Speculators
purchase land from farmers, but having neither the interest in nor aptitude for farming,
the speculators are apt to allow the land to lie fallow. In some cases, the land may be
leased to farmers for agricultural use, hut such leases may prevent speculators from
selling out ata l,,crative price in the middle ofthc growing season, Hence, the relatively
small amount of income to be obtained from such a lease may not be sufficient to
warrant foregoing opportunities for resale... The speculator, snare often than not, is
content merely to let the land ripen, i.e., let its price increase, without trying to use the
land during the interim,,..” See ibid., pp. 63—64.
“Ludwig von Mises, Socialism (London: Jonathan Cape, 1951).
“Dominick Armentano, Antitrust and Monopoly: Anatomy of a Policy Failure (New
York: John Wiley, 1982).
25
5ee John Burton, “Externalities, Property Rights and Public Policy: Private Property
Rights or the Spoilation of Nature,” in N.S. Cheung, ed., The Myth of Social Cost,
Hobart Paper 82 (London: The Institute of Economic Affairs, 1973), p. 74.
744
AGRICULTURAL LAND PROTECTION
Externalities will remain if there are transaction costs; if there are
no costs associated with negotiating, concluding, and enforcing contracts,
all spillovers will be internalized to the extent that the benefits
exceed the costs. Jf the cost of internalizing a side-effect exceeds the
benefits, the spillovers may be said to be optimal. Thus, once transaction
costs are included in the constraints on individual and governmental
behavior, it cannot be shown analytically that any particular
spillover represents a deviation from an attainable optimum.”
That is, once the constraints in the form of technology, tastes, information,
transaction cost, and so forth have been specified, the logic
of the framework must lead to an optimal outcome.’2 Specifically, if
the constraints are descriptive of real world conditions in the case of
a particular land market, it cannot be demonstrated that the existing
pattern of land use is nonoptimal given those constraints.
In the traditional Pigouvian approach to welfare economics, a difference
between private and social cost is simply postulated. It is
notshown that another method can decrease the costs ofinternalizing
spillover effects when contrasted with contracting through market
exchange. It is merely asserted that people do not take into account
the total effect of their actions.’3 If costs cannot be reduced by governmental
intervention or some other arrangement, there is no basis
for contending that social cost exceeds private cost.24 In summary,
when one takes into account transaction costs and the information
and incentive effects that are inherent in all nonmarket allocation
procedures, it cannot be demonstrated empirically that externalities
associated with land use are “inefficient,” i.e., constitute a deviation
from an attainable optimum. Indeed, at the attainable optimum, any
attempt to further reduce negative externalities will he inefficient;
the marginal value of the resources used to further reduce external
costs will be more highly valued elsewhere by consumers.
Uncertainty and Option Value
Because of major uncertainties about future conversion of farmland
to nonfarm uses, possible long-run climate changes, future trends in
agricultural productivity, and future water and energy supplies and
“Carl J. Dahlman, “The Problem of Externality,” Journal of Law and Economic.s 22
(1979): 154.
“See ibid., p. 153.
‘~Ibid.,p. 154. 24
Aside horn this problem with the Pigouvian approach, opportunity cost (the value of
the best sacrificed alternative) is inherently subjective and cannot be measured by
outside observers. See E.C. Pasour Jr., “The Economics of Natural Resources: An
Austrian Perspective,” paper presented at a conference on “The New Resource Economics,”
Political Economy Research Center, Bozeman, Montana, June 10—13, 1982.
745
---
costs, it is alleged that “preserving farmland for the future is like
buying an insurance policy to provide for future contingencies.”5
This idea is closely related to the concept of option demand, which
concerns the willingness to pay for retaining the option to use a
resource that would be difficult or impossible to replace and for
which no close substitute is available.’6 The option demand concept
in the context of this paper implies that the appropriate social rate of
time preference to he used in determining the present value of
farmland is lower than the market interest ~ The same problems
arise in identifying examples of option demand, however, as for all
other externalities associated with land use. A differenCe between
the market interest rate and the social rate of time preference is
merely asserted, but it is not shown that such a difference exists.’8
Moreover, when information, incentives, and transaction costs are
taken into account, it cannot be shown that the social rate of discount
for agricultural land is lower than the market rate.
The idea that farmland should he preserved through nonmarket
means because of uncertainty ignores the advantage ofdecentralized
markets in dealing with uncertainty. Uncertainty and constantly
changing conditions pose problems for central direction, since no
way has been thund to coordinate and transmit information as fully
as is done through market prices. In addition to information problems,
there are incentive problems, which inevitably affect the
implementation of all nonmarket land-use controls. Before discussing
implementation problems inherent in all nonmarket land-use
controls, several programs proposed to protect agricultural land use
will he described.
Land-Use Controls
During the past decade, a number ofmeasures havebeen proposed
or instituted to affect agricultural land-use patterns. The programs
may be classified as either voluntary, operating through economic
incentives, or involuntary, involving regulation. Several incentive
programs have been designed, at least in part, to protect agricultural
land. Some 45 states have now enacted agricultural use-value taxation
for farm and forest lands, legislation that permits qualifying agricul-
“CAST, Preserving Agricultural Land, p. 1.
“V. Kerry Smith, “Option Val,,e: A Conceptual Overview,” mimeograph (Chapel Hill:
University of North Carolina, 1982).
“Cohn Price,”To the Future: With Indifference or Concern? The Social Discount Rate
and Its Implications i’s Land Usc,”Journal of Agricultural Econon,ics 24 (1973): 396—
97’
“See Pierre Crosson, “A Shortage of Agricultural Land,” 11FF Resources, 1982, p.9.
746
AGRICULTURAL LAND PROTECTION
tural and forestry lands to be assessed for property tax purposes on
the basis of present use value instead of market value. The implementation
of use-value legislation faces theoretical as well as practical
problems.
Market-value and income approaches are used in implementing
use-value legislation. In the market-value approach, data on recent
sales of agricultural land, with little urban influence, in the same
county are used to estimate use value. In counties with large urban
centers, there is likely to he no agricultural land where price is not
affected by urban influences. In cases where market values of all
laud are influenced by nonagricultural factors, sales data are not
useful in determining agricultural use values. An alternative is to use
the income approach, which requires estimates of net income per
acre over time and the capitalization rate. Since there is a great deal
of subjectivity in estimating future income and in selecting the capitalization
rate, use values will be differently estimated by different
people. Consequently, there is no way to avoid a high degree of
subjectivity in making use-value estimates, since expectations about
future income and discount rates will vary.’0
Fee simple purchase, including public land banking, is also proposed
as a way to protect agricultural land. In this approach, local
and state governments might purchase lands either to provide environmental
amenities associated with open space or to keep land in
food production.3°Land banking is not usually proposed as a way to
protect land but rather to restrain land price increases through the
“elimination of speculative profits.”3’ There is no way to avoid speculation
in a world ofuncertainty; and when incentive and information
problems associated with governmental activity are taken into account,
public land banking is more likely to increase land prices.3’
Instead of purchasing agricultural land in fee simple, the farmer
might retain title to the land while local and state governments
purchase only the rights to develop land for nonfarm purposes.33 If
nEC. Pasour, Jr., “Estimating Agricultural Use Values in New York State: Comment,”
Land Economics 55 (1979): 405—407.
30
Fischel points out that concern in the NALS Final Report is focused on the adequacy
offuture food and fiher production. “Curiously enough the amenity values of farmland
are hardly mentioned.” See Fisehel, p. 3.
35
Jack Carr and Lawrence B, Smith, “Public Land Banking and the Price of Land,”
Land Economics 51(1975): 316—30.
32
E,C. Pasour, Jr., “Public Land Banking and the Price of Land: Comment,” Land
Economics 52 (1976): 553—64.
33
Leon F. Danielson, Land-Use Planning in Euro] Areas: Policy Alternatioes, Center
for Rural Resou,’ee Development Report no. 10 (Raleigh: North Carolina Agricultural
Extension Service, 1978).
747
---
the power of eminent domain is used in the case of fee simple
purchase or purchase of development rights, of course, participation
is no longer achieved through economic incentives.
The creation of agricultural districts is still another means used to
protect farming operations and provide economic incentives to preserve
farmland. New York’s Agricultural Districts Law, enacted in
1971, for example, grants tax relief and discourages urbanization
through restrictions on eminent domain and local government ordinances
that affect agriculture.34 The property ownerretains the option
to sell his land at any time he chooses. While participation in the
New York program is voluntary, a similar Wisconsin program initiated
in 1977 is voluntary at the county level but not for the individual
landowner.
The zoning ordinance remains the most common means of implementing
land-use plans in the urban l’ringe35 and has often been
imposed to preserve open space, to manage growth, and so on.3°
Agricultural zoning, an involuntary regulation proposed to protect
agricultural land &om the standpoint of food supply, incompatible
uses, or both, may be either exclusive or cumulative.3’ In an exclusive
agricultural zone, agriculture and its related farm buildings are the
only uses allowed.38 Under cumulative zoning, both agricultural and
nonfarm residences are permitted. There is a long history ofpolitical
failure arid corruption associated with zoning where approval for
zoning changes is secured through political influence and payoffs.3°
In view of this, it is ironic that agricultural zoning is now proposed
as a measure that “would significantly improve the efficiency of land
use in farming areas.”4°
Evaluation
Of the two important questions concerning the effects of land-use
controls, most agricultural economists have focused on the first: Are
the controls effective in protecting agricultural land? In the case of
use-value taxation, the qualifying landowner often obtains a significant
reduction in taxes, but use-value legislation has had little effect
~1bid.
“Ibid.
~Nelson
31
See ibid., p. 1.
~Danielson.
~John A. Cardiner and T.R. Lyman, Decisions for Sale: Corruption and Reform In
Land-Use and Building Regulation (New York: Praeger, 1978).
40
Nelson. p. 44. See also David Ervin et al., Land Use Control: Evaluating Economic
and Politicol Effects (Cambridge, Mass,: Ballinger, 1977), p. 100.
748
AGRICULTURAL LAND PROTECTION
on the conversion of agricultural land to nonagricultural uses.4’ Usevalue
taxation does decrease the cost of holding land in agriculture,
especially in rapidly urbanizing areas. In such areas, however, potential
gains from development are likely to swamp any tax advantages
there may be in keeping land in agriculture. Thus, measures that are
effective in retaining land in agriculture are likely to necessitate
either involuntary controls or higher taxes for the non-farm population.
Incentive programs, such as fee simple purchase, public land
banking, and purchase of development rights can be effective in
protecting land but involve a high, direct taxpayer cost.4’
A second, more basic question about land-use controls to protect
agricultural land has been largely neglected: Are such programs
beneficial? If the government wishes to protect farmland or open
space, an incentive program is clearly preferable to involuntary controls,
since willingness to incur the required expenditures provides
a test of the value placed on retaining farmland or open space. If, for
example, open space is obtained through zoning and the cost is borne
by owners of the zoned land, the demand for environmental amenities
will be overstated. A more important issue, however, concerns
the desirability of protecting agricultural land. Nelson suggests that
agricultural zoning is beneficial since it can extend the life offarming
in a region.43 Fischel describes “right to farm” legislation as a “sensible
approach” in protecting farmers from nuisance suits or other
controls designed to restrict farm operations.44
The conclusion that zoning and other measures should be used to
protect agricultural land ignores an important question: What is the
“optimal” amount of land in agriculture? Nelson recommends “widespread
adoption of agricultural zoning along with other features of
agricultural districting” for farmland near metropolitan areas as a
way to “maintain the existing farming way of life against threats of
piecemeal residential inh’usion.”45 Proposals to “protect agriculture
from premature conflicts with residential uses” raise a number of
questions: How does one define and identify cases of premature
conflicts? At what point is the competition ofland for non-agricultural
uses not premature? Does the fact that a group of farmers desire to
continue farming meanthat the efficiency of land use will be increased
if agricultural districts, zoning, or other measures are used to keep
42
Taxpayer cost is higher, ofcourse, in the case offee simple purchase than where only
development rights are purchased.
43
Nelson, p. 12.
“Fischel, p. 19.
43
Nelson, p. 15.
749
---
land in agriculture? How does one ensure that regulations will not
be used to keep land in agriculture when it has a higher value in
other uses? Justifying the protection of agricultural land on the basis
of local economic benefits ignores the fact that a tract of farmland is
converted to nonfarm use only when its expected value in other use
exceeds its agricultural value.
Zoning classifications can be conceived of as involving either permanent
or transitional categories of use. A case can be made for
transitional zoning as a way of minimizing land-use conflicts when
incentive and information problems are minimized or ignored. However,
agricultural zoning is now being recommended as a permanent
rather than a transitional category of use, which means that it is
designed to prevent converting land to other uses regardless of cost,
Fischel suggests that the real forces behind the farmland preservation
movement are local anti-development interests: “...zoning for farms
appears to be a means by which initial nonfarmer immigrants effectively
‘pull up the gangplank’ to keep subsequent immigrants out.”4°
Consequently, one cannot be confident that zoning originally conceived
of as involving transitional categories of use will not become
permanent zoning. At any rate, in evaluating the likelihood that
nonmarket land-use controls will improve the efficiency of land use,
it is important to take implementation problems into account.4’
Implementation Problems
When real world political processes are compared with an ideal
polity norm, government failure is as inevitable as is market failure
in comparing real world markets with the perfect competition norm.
Thus, finding market failure does not warrant government intervention
unless it can be demonstrated that the outcome will be superior,
given the inevitability of government failure. In evaluating the likelihood
that nonmarket approaches will improve the efficiency ofland
use, first consider the information and incentive problems endemic
in central direction.
Information Problems
The basic economic problem in the context ofthis paper is to secure
the best use of land resources utilizing the knowledge of all members
of society for ends whose relative importance only these individuals
16
Fiseliel, p. 22. See also Ervin et al., pp. 161—62.
47
Charles Wolf, Jr., “A Theory of Nonmarket Failure: Framework for Implementation,
Journal of Law and Economics 22 (197W: 107—40.
750
AGRICULTURAL LAND PROTECTION
know.48 Market prices of’ land coordinate and transmit widely dispersed
information more effectively than is possible through any
other known method. Moreover, the factors that cause land prices to
increase or decrease and thereby guide the behavior of decision
makers are influences that would need to be taken into account in
any conceivable system ofcoordinated economicactivity.49 Increased
demand for land in housing, golf courses, and other uses is transmitted
through the price system and reflected in higher prices paid for
such land. The information influencing choices by buyers and sellers
of land is decentralized and cannot be objectively determined except
as revealed by the actions of market participants.59 Thus, there is
inevitably a loss of valuable information when land price signals are
suppressed or overridden by zoning and other land-use controls.
Moreover, the profit motive gives private entrepreneurs an incentive
to discover new opportunities for satisfying consumer preferences,
which makes land markets very responsive to ever-changing circumstances.
51 Land use planning through nonmarket methods, on the
other hand, cannot readily adapt to change.52
What are the implications of viewing the market as an information
and discovery process? Von Mises and Hayek demonstrate in the
“economic calculation debate” that market prices are necessary in
achieving efficient resource use.53The importance ofthe price system
in coordinating and transmitting information, however, is ignored by
most advocates of land-use planning. There is a failure to recognize
the information problems that are inherent in all nonmarket allocation
procedures. In proposals to institute “comprehensive land-use
planning,” for example, land classification is often suggested as a
means of allocating land to various uses. A proposed land policy
program for North Carolina recommends that all land in the state be
classified on a county-by-county basis into one offive different classes:
45F.A. Hayek, Individualism and Economic Order (Chicago: University of Chicago
Press, 1948).
49
David Ramsay Steele, “Posing the Problem: The Impossibility of Economic Calculation
Under Socialis,n,” Journal ofLibertarian Studies 5 (1981): 7—22.
‘°SeeThomas SoweR, Knowledge and Decitions (New York: Basic Books, 1980), pp.
217—18.
51F.A. Hayek, New Studies in Philosophy, Politics, Economics and the History of Ideas
(Chicago: University of Chicago Press, 1978), p. 236.
‘2E.C, Pasour, Jr., “Preserving Agricultural Land: Lessons from the Economic Calculation
Dehate,’ paper presented at a conference on “Agricultural Land Preservation:
Economics or Polities,” Political Economy Research Center, Bozensan, Montana, June
10—13, 1982.
~Karen I. Vanghn, “Economic Calculation Under Socialism; The Austrian Contribution,”
Economic Inquiry 18 (1980): 535—54.
751
---
developed, transition, community, rural, and conservation.54 Preservation
of “good agricultural land” is a m~orfocus of the program,
and it is recommended that local land classification plans should
discourage urban development on prime agricultural lands except
when no other alternative exists. Prime agricultural land, however,
is quite often even move productive in nonagricultural uses. Moreover,
alternatives are always available at some location, Thus, land
classification is not a realistic alternative to market prices in resource
allocation. The “comprehensive land-use planning” movement fails
to recognize that, aside from the market, there is no objective procedure
to determine which land parcels to retain in agricultural and
other uses either now or in the future.
Information problems also arise in attempts to wanda~optimal
conservation practices. Conservation is an investment problem and
should he judged by criteria similar to those used in evaluating other
investments. Profitable management and conservation practices can
be determined only by comparing the expected costs and benefits of
these practices. Moreover, since costs and benefits occur over time,
there is no reason to expect the evaluation of’a particular conservation
measure by an outside observer to correspond to that of the decision
maker under real world conditions of uncertainty.55 In evaluating
investments in conservation measures, the economist has no objective
procedure (aside from the survivor principle) to identify inefficient
resource use. Thus, attempts to determine and mandate optimal
levels of soil conservation face the same problems as other attempts
to second-guess real world decision makers,56
Incentive Problems
Political problems also arise in instituting nonmarket land-use
controls because of perverse incentives. First, when compared with
the market, the political process is short-run oriented, since the political
decision maker’s power is frequently determined by the results
of the next election.
Second, the incentive structure ofgovernment is such that the seIlL
interest ofthe political decision makerdictates that he “play it safe.”
Decision makers in the private sector, receiving the benefits of good
91
Novth Carolina Laud Policy ConnciS (NCLPC), A Land Rcsources Program for North
Carolina (Ra!eig!3: NCI YC, 1976).
55
For a vivid description ni the subjectivity associated with i nvcstments in equipment,
see G.L.S. Shackle, Epistemics ond Economics (London: Cambridge University Press,
1972), pp. 18—19.
~EC Pasour, Jr., “Conservation, ‘X-Efflciency’ and Ellieient Use of Natural Resources,”
Jon rnol of Liheriarioa S Indies 4 (1979): 371—90.
752
AGRICULTURAL LAND PROTECTION
decisions and bearing the costs of poor ones, have an incentive to
use resources most effectively to accommodate consumer desires. In
the case of government bureaucracy, where the payoff from a risky
course of action does not accrue to the decision maker whereas the
cost does, there isa strong incentive to avoid risk. This factor is likely
to be important in changing zoning regulations and other land-use
controls that once were instituted regardless of any potential increase
in economic efficiency associated with change.
Third, in addition to the possibility of government failure in the
implementation of land-use controls, such controls may also distort
market behavior by affecting the decisions of landowners, anti-growth
advocates, and other individuals. Regulation creates an incentive for
landowners to obtain tax, subsidy, or regulatory favors rather than
focusing on cost-saving methods of production. Agricultural zoning
that prevents or restricts the conversion ofagricultural land, for example,
generates countermeasures, including landowners lobbying
through farm organizations, hiring lawyers to find loopholes, and so
on. Generally, an individual must act as part ofan organized pressure
group to be effective on an issue decided through the political process.
Fourth, although land-use planning through the political process
is presumably based on widespread citizen participation, any landuse
plan must be carried out by government officials, Decisions are
reached through a political process dominated by special interest
groups with narrow interests. When benefits or costs are highly concentrated,
particular land-use decisions are likely to he decided by
small groups. As a result, political decision makers are interested in
“biased samples” of preferences: “So long as those who govern are
held responsible by the governed through citizen participation, political
decision makers and participants will seek advantages through
the system by disadvantaging nonparticipants.”~7
Finally, governmental monitoring of activities relies on the cooperation
of those whose interests are markedly affected by any reforms
or changes that might be implied.SS Consider, for example, an analysis
of soil erosion by the Soil Conservation Service (SCS). How likely is
it that a study conducted by SCS personnel at the local, state, or
national level will conclude that there is a reduced need for conservation
measures or for reduced public expenditures and SCSperson-
~Ervin et al., p. 59. 58
John A. Baden and Richard L. Stroup, “The Environmental Costs of Governmental
Action,” Polinj Reeiew 4 (1978): 23—26.
753
---
nd? This problem is graphically described by Brewer and Boxley in
the case of the NALS:
Can special analyses of agricultural land adequacy . . . he assured
of objectivity? Many interested pat-ties have a stake in the conclusions
and recommendations of such inquiry, Payoff can be in the
form of expanded bureaucratic turf, larger budgets for particular
agencies, . . . or personal enhancement Absent a strong and
neutral oversight body to shield researchers ... their work is vulnerable
to influence, to misrepresentation in the public media, or
to being withheld entirely from the media.’°
In view of the incentive and information problems inherent in
nonmarket land-use controls, it can hardly be overemphasized that
the actual incidence of governmental failure must not he confused
with the incidence that would, occur if decision makers in government
were not constrained by information and incentive problems
in following the dictates of welfare economics.6°
Conclusions and Implications
The key issue in the case of land resources concerns the most
effective way of allocating land to agricultural and nonagricultural
uses. There are basically only two ways of planning land use: the
market process; and central planning involving local, state, or federally
administered land-use controls. Despite the widely acknowledged
merit of the market in facilitating efficient resource use and
material output, various measures are being proposed and implemented
to change the pattern of land use. Use-value taxation, fee
simple purchase, and purchase of development rights rely on financial
incentives to induce owners of agricultural land to retain more
land in agriculture. Nonvoluntary agricultural districts, agricultural
zoning, land classification, and other regulations represent a transfer
of decision-making authority fiom individuals to collective bodies.
There are two important questions concerning any land-use measure
intended to protect agricultural land, whether based on economic
incentives or regulations. First, will the measure achieve its
stated goal? A land-use control that effectively retains land in agriculture
will be costly in terms of tax revenue, or it must be involuntary.
Second, will measures to protect agricultural land increase the
efficiency of land use? Land shifts out of agriculture because it is
55
Michael F. Brewer and F. Boxley, ‘‘Agricultural Land: Adequacy ofAcres, Concepts,
and Inlbrination,” Ameflcan journal of Agricultural Economics 63 (1981): 886.
raAlan Peacock, “On the Anatomy ofCollective Failure,” PublicFinance 35(1980): 33—
43.
754
AGRICULTURAL LAND PROTECTION
economically more productive in other uses. Since the difference in
the value of land converted from agricultural to nonagricultural uses
is often quite high, a significant reduction in the conversion of agricultural
land has a high opportunity cost.61
The theoretical foundation of nonmarket land-use controls is deficient
in the sense that no way has been found to rationally allocate
land to various uses through central economic planning due to the
separation of knowledge and power. If the knowledge of market
participants is consciously ignored, what criteria are to be used in
land-use decisions? When information and incentive problems are
considered, there is no basis for thinking that a more efficient pattern
of land use can be achieved through central planning as suggested
in the NALS: “The goals of protecting agricultural land and guiding
urban growth are best achieved in combination with a comprehensive
growth management system.”62 Yet, the failure to recognize the
inherent limitations of comprehensive land-use planning as revealed
by the “economic calculation debate” 50 years ago is not acknowledged
by many economists, including some specializing in the economics
ofland use.63 Raleigh Barlowe, a well-known land economist,
summarizes the requirements for a successful farmland protection
policy: “. .. official guidelines should be issued .. . indicating the
criteria that should be used to designate the area to be protected and
also the quota of acreage that should be protected in each region or
county.”TM
There are also incentive problems endemic tononmarket land-use
controls due to the separation of authority from the costs and returns
associated with various programs affecting land use. Even if the
person in authority could obtain the information necessary to act in
the public interest, the bureaucratic advantages ofincreased personnel
and budget favor actions by government officials that perpetuate
and increase controls regardless of their effects on land use.
°Crosson
°‘NALS Final Report, p. 18.
S
3
The implications of the von Mises-Hayek arguments were apparently not recognized
even at Chicago. Jo his recent discussion of the history and meaning of Chicago
economics, Reder makes the following statement about the appointment of Oscar
Lange, a central figure in the “economic calculation debate” and a leading proponent
of “market socialism”: “His work on the use of the prce system to allocate resources
in a socialist economy was widely considered to he a definitive answer to the Mises-
Hayek attack on the economic efficiency of socialism See Melvin W. Reder,
“Chicago Economics: Permanence and Change,” Journal of Economic Literature 20
(1982): 4. 54
Raleigh Barlowe, “Your Stake in a Land Use Policy.” in Pressing Land Use Issues,
MP415 (Columbia: Missouri Agricultural Extension Service, 1974), p. 2.
755
---
Conventional welfare theory suggests that agricultural land and
soil resources should be preserved beyond the level dictated by
market forces whenever there are spillovers.65 Market failure based
on the idealized perfect competition norm, however, offers no prima
facie case for political land-use controls. All institutions fall short
when judged against some ideal. When incentive and information
problems’ are taken into account, the problem of government failure
appears to be fully as important as market failure.66 The relevant
comparison is between real world markets and real world political
institutions.
Land use in ruTal areas of the United States has been largely
planned for 200 years without land-use controls. None of the reasons
commonly cited for governmental intervention to protect agricultural
land can withstand careful scrutiny. The success of American agriculture
is ample proof that farmers~~~recompetent entrepreneurs, and
there is no persuasive evidence that farmers shed their entrepreneurial
ability when improving and maintaining soil resources. Moreover,
since soil erosion is location specific, a nationally administered
soil eonsei’vaflon program that is politically designed to provide funds
and services to all geographic areas is bound to he a model of inefficiency.
67 Thus, whether in allocating land to various uses or in
maintaining soil resources, there is no persuasive evidence that overriding
market signals will be less damaging than political solutions
have been in energy, credit, labor, and other markets.
Spillover problems arise when government fails to define and
protect private property rights. Thus, the primary solution to spillover
problems associated with the use of land and other resources is to
clearly define property rights and make polluters legally responsible
for the consequences of their actions. In a land-use system where
property rightsare well-defined and legally protected, externalities
will he internalized.68 In the case of public lands in the American
West, there are “growing problems of overuse, overexploitation, and
mismanagement of these lands—all ofwhich derive from their essen-
‘
5
Tlse conventional Pigouvian approach to natural resource policy abstracts from inl’or’
matioi’ and i necntive problems and almost invariably concludes that intervention is
wanantcd. See )nhn Mclnerney, “Natural Resource Economics: The Basic Analytica’
Principles,” in J. A. Butlin, ed. Economics of Eneiron,nental and Natural Resources
Policy (Boulder, Cob.: Westview Press, 1981), p ‘54.
‘~SeeBruce L. Benson, ‘‘Land-Use Regulation: A Supply and Demand Analysis of
Changing Property Rights,”Journal of Libertarian Studies, lorthcoming, pp. 22—23.
h?Sehultz p. 17. See also Christopher K. Leman, ‘‘An Era (}f Limits,’’ 11FF Resources,
1982, p. 5.
°
8
BobertJ. Smith, “Privatizing the Environment,” Policy Reeiew 20(1982): 11—50.
756
AGRICULTURAL LAND PROTECTION
tially being a commons~~“6’3 Institutional changes to reduce property
rights conflicts and improve land use is an alternative to administrative
land-use controls. Privatization of agricultural land in the public
domain, including BLM and Forest Service lands~,would reduce the
mismanagement of these lands.
Farm versus nonfarm conflicts over noise, odors, and dust from
farm operations often arise when there is rapid nonfarm population
growth in rural areas. Agricultural nuisance suit legislation is one
approach to dealing with these conflicts. For example, North Carolina’s
legislation provides that agricultural operations will not legally
become a nuisance because of changed conditions in the locality if
the farm has been in operation for a specified period of time (e.g.,
more than one year) and if it is managed properly.7°Even in the case
of nuisance suit legislation, there is a question of whether it will
improve the overall efficiency of laud use.There would appear to he
no more reason for specific nuisance suit legislation in the case of
agriculture than for other industries giving rise to environmental
spillovers. In fact, the stated purpose ofthe North Carolina legislation
is not to reduce property rights conflicts hut to conserve and protect
agricultural land.”
In conclusion, the case for governmental intervention to protect
agricultural laud rests on two assumptions. First, it assumes that
spillovers are important in all or many land-use decisions, Second,
it assumes that spillovers fi-om land-use controls to correct for market
failure will be less than those that arise from voluntary decisions in
decentralized land markets. The result of governmental regulations
in a host of areas, including agricultural price supports, transportation,
communications, and education, has been to stifle competition,
increase consumer prices, and reduce the diversity of services offered.
In view of the information and incentive problems inherent in all
central planning, there is no reason to expect that the results of
governmental intervention to protect land and soil resources will he
different,72
6
Thid., p~35.
701f the farm was outside the corporate limits of a city on the day the law was enacted
(March 26, 1979), then all present or future local ordinances that would make the
operation a nuisance are null and void so long as the farm is properly managed and
without negligence. See Leon E. Darnelsou, North Carolina’s Agricultural Nuisance
Suit Law,AG~188(Raleigh: North Carolina Agricultural Extension Service, 1980).
71Ihid.
ThIn view of the conflicts and misuse of forest, range, and other lands in the puhlie
domain, it is ironicthat ‘‘comprehensive land—use planning,” ‘‘protection ofagricultural
land,” and other governmental measures are proposed to increase the efTieient use of
privately owned lands.
757
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What is the role of the economist in agricultural land-use policy?
In assessing the effects of government intervention, the economist
should take a principled approach, evaluating every proposed landuse
control for its likely legal, political, social, and ethical repercussions.
73 In land use (as in other areas), the role of the economist is
not to determine the optimal pattern of land use on a local, state, or
national basis; a task which is clearly impossible, given the information
costs referred to in this paper. Instead, the economist qua
policymaker should attempt to identify and explain the institutional
framework necessary for individual decision-makers in land (and
other) markets to effectively cooperate in pursuing their own diverse
ends. It is also important to explain the inherent limitations of government
officials in their attempts “to do good” and to promote the
public interest whether in land use or in other areas.74
73
Leland B. Yeager, “Economies and Principles,” Southern EconomleJournal42(1976):
559—71.
“Richard B. McKenzie, Bound to Be Free (Stanford, CaliL: Hoover Institution Press,
1982), p. 173.
758