Uncertain emerging biomass markets, ecosystem services, and optimal land use

We study a rent-based land use problem where a landowner is uncertain about the timing and extent of an emerging biomass market. Unlike other work, ecosystem service flows, in the form of amenities, and transaction costs impact conversion from agriculture or conventional forest to bioenergy, but these have varying effects for a social planner and private landowner due to the wedge in valuation of amenities. Land allocated to woody biomass production increases with a higher expected biomass price and an earlier timing of biomass markets, but if transaction costs are high, the required expected strength of market emergence required to ensure bioenergy adoption may be prohibitive, suggesting that land use modeling without transaction leads to overly optimistic conclusions. The fact that amenities to bioenergy and conventional forests differ leads to interesting differences between a social planner and private landowner decisions.