Hedonic Valuation of Ecosystem Services Using Agricultural Land Prices

Agriculture, an ecosystem transformed by humans for the purpose of supplying food, fiber and biofuel, can provide people a host of benefits, or ecosystem services (ES). While markets exist for farm products, many of today’s central agro-environmental policy concerns are related to ES that lack complete markets, such as regulating ES and recreational, aesthetic and cultural ES. Valuation of non-marketed ES linked to agriculture is needed to improve their utilization and efficient provision. Some ES that facilitate agricultural production or provide natural amenities can be perceived by people through various natural resources and landscapes on farmlands and surrounding areas. One indirect way to measure the value of ES is via what people pay for the lands that provide them. In this hedonic study, the agricultural land price is used to reveal marginal values of those resources and landscapes, and to infer the degree of ES capitalization into land prices in southwestern Michigan. Results suggest that recreational and aesthetic services are largely capitalized through lakes, rivers, wetlands, woodlands and conservation lands. Some production-supporting regulating services may have also been partially capitalized. Certain ES from the land parcel and its surroundings are unlikely to be capitalized due to unawareness or little realized value (e.g., beneficial insects and soil microbial communities), as well as missing incentive for large scale public goods (e.g., carbon sequestration and biodiversity). In comparing sales prices and appraisal values, we find that sales prices reflect amenity benefits better than appraisal values, which tend to emphasize agricultural production potential and built capital values.