The Critical Role of Conversion Cost and Comparative Advantage in Modeling Agricultural Land Use Change

Abstract

The difference in land use modeling approaches is an important uncertain factor in evaluating future climate scenarios in global economic models. We compare five widely used land use modeling approaches: constrained optimization, constant elasticity of transformation (CET), the additive form of constant elasticity of transformation (ACET), logit, and Ricardian. We demonstrate that the approaches differ not only by the extent of parameter uses but also by the definition of conversion cost and the consideration of comparative advantage implied by land heterogeneity. We develop a generalized hybrid approach that incorporates ACET/logit and Ricardian to account for both conversion cost and comparative advantage. We use this hybrid approach to estimate future climate impacts on agriculture. We find a welfare loss of about 0.38-0.46% of the global GDP. We demonstrate that ignoring land heterogeneity or land conversion costs underestimates climate impacts on agricultural production and welfare.

Coupling a Detailed Transport Model to the Integrated Assessment Model REMIND

“…The market shares among alternatives are attributed at each level of the nested structure via a Weibull-based modification of the logit approach [34]. As summarized in [33], this approach is consistent with a wide body of literature that uses logittype functions in order to represent consumer choices under probabilistic conditions. The utility maximization function of a decision maker facing J choices is assumed to feature an independently, identically, distributed error j associated to each j th choice.…”

“…EDGE-T is derived from the Global Change Assessment Model (GCAM) transport module [31,32] with a high level of detail in its representation of technological and modal options. It is a partial equilibrium model with a nested Weibull-based function [33,34]. The nested structure is reported in Table 2 EDGE-T achieves a detailed representation of fleet composition in a flexible structure.…”

Improving the Way Land Use Change is Handled in Economic Models

“…For instance, as mentioned earlier, the elasticity of effective cropland with respect to cropland expansion parameter developed in Taheripour et al (2012a) based on the (NPP) data at the AEZ level can be employed for estimating land productivity changes. Also, another recent development in Zhao et al (2019) incorporated the ACET and the Ricardian approaches so that it allows considering land heterogeneity implied comparative advantage using land productivity distributions provided by high-resolution agronomic models. Furthermore, instead of using only labor, more sophisticated cost shares may be employed for the land conversion service.…”

Modeling the process of cost formation and their transition to the state of expenses

“…It is accounting that forms information about the costs of an organization, their properties, condition, reasons for formation, movement and size. The variety and specifics of costs typical in agricultural activities [1][2][3][4] complicate the work of an accountant in the context of digitalization of production [5][6][7][8][9]. Therefore, it is important to study costs as an accounting object from the point of view of their classification, recognition, essence, evaluation, transition from one state to another.…”