Question

3. This problem looks at problem 2 from another angle. Again, there are 100 acres in a jurisdiction, depicted below. The land can be used as subdivided residential land, or for farming. The value of land in each use is as follows.

Residential Development: 1,000 – 10D

Farming: 250

The notation D indicates developed acres and the notation F indicates farmed acres. Farm land provides environmental benefits that are homogenous across the landscape, and equal to 50 per acre that is farmed. These environmental benefits are pure public goods, meaning the benefits are not reflected in the market prices of farm or residential land.

a. Suppose the Nature Conservancy (TNC) will use conservation easements to prevent 20 acres of farm land from being developed. What is least amount of money that TNC could spend to conserve this land? Which acres would it buy? (Hint: remember that easements are valued as the difference between the value of developed land and the value of farm land.) (Hint: looking at the graph may help).

b. Suppose conservation easements are not an option and the TNC must buy the 20 acres of farmland if it wants to conserve them. What is the minimum amount that TNC would have to pay in order to buy and conserve farmland?

c. Compare your answers to part a and part b. Are conservation easements a cost-effective means for conserving land and preventing it from being developed? How might the potential to rent the land to farmers in long-term contracts help?

Answer 1

1.

Lease amount of money TNC would use to conserve land=Acres of farm land*Price per acre

Lease amount of money TNC would use to conserve land=20 Acres * $50 per acre

Lease amount of money TNC would use to conserve land=$1000

2.

If conservation easements are not an option, then TNC must but the land-

For Residential development - The price to be paid - 1000 - 10D

For Farming Land - 250

3.

Conservation easements are certainly cost effective. If we compare the price in the above two cases -

In case of conservation the price paid - is $50 per acre. On the other hand, the price of the land paid in case if the conservation easement is not in place is -

For Residential development - The price to be paid - 1000 - 10D

For Farming Land - 250