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Optimal Dynamic Management of Agricultural Land-Uses: An Application of Regime Switching

Published online by Cambridge University Press:  26 January 2015

Graeme J. Doole  and
Greg L. Hertzler
Graeme J. Doole
Affiliation:
Centre of Environmental Economics and Policy, School of Agricultural and Resource Economics, Faculty of Natural and Agricultural Sciences, University of Western Australia, Crawley, Western Australia, Australia Department of Economics, Waikato Management School, University of Waikato, Hamilton, New Zealand
Greg L. Hertzler
Affiliation:
School of Agricultural and Resource Economics, Faculty of Agriculture, Food and Natural Resources, University of Sydney, Sydney, New South Wales, Australia
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Abstract

The capacity of global agricultural production to meet increased demand for food from population growth and wealth accumulation is threatened by extensive land degradation. Nonetheless, previous research has focused primarily on the dynamic implications of input management and ignored land-use choice. This paper extends this theory through an examination of the intertemporal management of agricultural land through the use of non-crop inputs, such as fertilizer, and land uses that either degrade or restore productivity. The need to consider the relative total asset value of alternative crops over time is demonstrated. Moreover, higher output prices for degrading crops are shown to increase their relative value, motivating the later adoption of substitutes. An inability of land markets to reflect differences in resource quality and low capital malleability promote greater degradation. However, substitution of complementary effects through input use may help to sustain productivity. These factors are discussed in the context of crop sequence management in Western Australian cropping systems.

Keywords

crop sequencesland degradationregime switchingQ15Q24
Type
Research Article
Information
Journal of Agricultural and Applied Economics , Volume 43 , Issue 1 , February 2011 , pp. 43 - 56
Copyright
Copyright © Southern Agricultural Economics Association 2011

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