The shadow value of agricultural land rent of rural households and alternative uses of land for sustainable development: the case of Mexico

Market failures are frequent in the rural sector of less developed countries, so, rural economic agents that face high transaction costs take their decisions based on implicit or shadow prices. Failing to consider this feature may generate, amongst others, misleading results for policy evaluation and recommendations. In this paper we develop a theoretical agricultural household model that considers market failures in a subsistence crop market and in agricultural land and labor markets. We apply the model to estimate econometrically the shadow price of agricultural land of rural households in Mexico using economic and socio-demographic data from a representative national survey of these economic agents. We find that the estimated average shadow price of their land rent is relatively high and also that it has sharp variation in rural Mexico. Based on these results we suggest that policies aimed to promote changes in the use of rural land (e.g. from agriculture to forestry) have to consider the value attached to agricultural land by rural households and its variability according to the diversity of agro-ecological conditions in countries like Mexico. Acknowledgement : We thank the financial support of Mexico Nacional Council for de Evaluation of Social Policy (CONEVAL, Spanish acronym), granted to the authors through El Colegio de Mexico.