Efficient Policies for Environmental Protection: An Econometric Analysis of Incentives for Land Conversion and Retention

This study investigates the costs of subsidies for land retention and conversion, in addition to a policy that combines these incentives. A Markov model of forest and agricultural land use is estimated for the U.S. South Central region and used to simulate retention and conversion policies. Results suggest a conversion policy is less costly for increasing forest area, and a retention policy is less costly for increasing agricultural land area. The costs of separate subsidies can be up to 300% higher than the costs of combined incentives. However, when administrative costs are taken into account, conversion policies are likely to be less costly.