Rents, efficiency, and incomplete markets: exploring the inner workings of the emerging market for private land preservation and conservation easements

Abstract

This economic study explores land market development and identifies contributing sources to incomplete markets (markets that do not operate efficiently or yield consistent price information). I make the case that the market for private land preservation–land that is preserved through the efforts of NGOs or land trusts–is an incomplete, but emerging market. Using graphical and mathematical arguments, I discuss the positive externality from private lands that present public benefit, and resulting impact upon efficiency and landowner rents. I present a comprehensive economic analysis of conservation easements (the policy tool most often used by the private land preservation movement) and I use this analysis to determine contributing sources to the incomplete market. I make the case that markets that display limited or no price information require a thorough inductive research analysis for appropriate economic model specification. This is because there may not be enough information in the current economic literature on which to base priors; hence the researcher will inflict her own biases on the study if inductive qualitative research is not implemented. In this publication I use a mixed methods research protocol that incorporates qualitative research in the first stage of the study to yield an economic model in the second stage of the project. I compare and contrast the results from my mixed methods model with a strictly deductive economic research approach and illustrate that the private land preservation community is seeking to preserve "a sense of place", rather than just specific attributes or features of the land, which yields implications for market efficiency. Using results from the qualitative phase of my mixed methods model, I perform the first known surgical dissection of the marginal private benefits curve to illustrate that commercial rents, option values, landowner private amenity rent (PAR), and policy failure can each contribute to an incomplete market. I draw the conclusion that although the market for private land preservation shows signs that it will eventually develop into an efficient market, the government could implement policies to accelerate the efficiency, due to the irreversibility of converting undeveloped land for development and market information failures.