Research / Funded Research Projects / Project 1- Implicit Prices of Habitat Conservation Easements

Project 1- Implicit Prices of Habitat Conservation Easements

Location: University of Manitoba
Research Team: Chad Lawley 
Duration: March 2011 - March 2012

Background and Objectives

In return for a one-time payment, conservation easements remove the option of converting existing natural habitat to agricultural use. Standard economic theory suggests the option to convert natural habitat has value, and this value is capitalized into the price of agricultural land. Restricting future use through a conservation easement removes that option value. In this study I will investigate the value of the option to convert natural habitat to agricultural use, as revealed by the impact of conservation easements on land values.

Previous work on the implicit price of conservation easements in areas of production agriculture is limited. Shultz and Taff (2004) use hedonic methods to estimate the implicit price of wetland easements in three North Dakota counties. Shultz and Taff find that easements on permanent wetlands reduce agricultural land values by $160/acre, or 39% of average surrounding land values. Conservation easements are not randomly allocated across the landscape. Factors that influence land prices, such as acreage in natural habitat and soil quality, are also factors that influence the likelihood that a parcel has a conservation easement. Previous estimates of the implicit prices of conservation easements do not account for these selection effects. This study uses a propensity score matching estimator to address selection issues.

Study area and methodology

The study area for this research is the Prairie Pothole region of southern Manitoba. Land values are obtained from parcel-level land transaction data documenting the date, sales price, and acreage of all arms length sales of agricultural land in southern Manitoba from 1988 through 2010. Easement data documents the exact location, the date the easement was signed, and the natural habitat protected for all easements purchased by Ducks Unlimited Canada, the Manitoba Habitat Heritage Corporation (MHHC), and Nature Conservancy Canada (nearly all easements in the prairie pothole region). Property data obtained from assessment records documents parcel characteristics including acreage of wetlands, natural habitat (bush and grassland), native pasture, and soil series and texture for arable land. A parcel level soil productivity/risk index computed by the provincial crop insurance agency is used to control for underlying heterogeneity in agricultural productivity.

References

Shultz, Steven D. and Steven J. Taff. 2004. "Implicit Prices of Wetland Easements in Areas of Production Agriculture," Land Economics 80(4): 501-512.

Refereed Contributions

"Biases in Nutrient Management Planning," with Erik Lichtenberg and Doug Parker, Land Economics, (85:1), 2009.

"Biases in Nutrient Management Planning," with Erik Lichtenberg and Doug Parker, , (85:1), 2009.

"The Political Trade-off between Environmental Stringency and Economic Development in Rural America," with Hartley Furtan, Journal of Regional Science, (48:3), 2008.

"Pre-empting Non-indigenous Species Introductions: Targeting Policy," with Christopher Costello and Carol McAusland, ed. Kevin Ghallagher, Handbook on Trade and the Environment, Edward Elgar Press, 2009.

Student training

This research proposal is requesting funds to support an undergraduate/graduate student with a background in GIS and wetland classification. The student will classify wetlands and quantify dispersion of wetlands within parcels, based on aerial imagery and training provided by MHHC. The student will also collect data documenting ecological characteristics that influence the likelihood of a parcel having a conservation easement, including the presence of habitat suitable for waterfowl, the presence of neighbouring parcels with conservation easements, land use of neighbouring parcels, and distance to other wetland complexes.

Research value

This research provides conservation agencies and landowners with an estimate of the impact of conservation easements on land values. This estimate can be compared with the one-time payments conservation agencies are currently offering. Further, the implicit price of conservation easements reflects the value of the option to convert natural habitat to agricultural use. This research therefore sheds light on the extent to which conservation agencies have been successful in targeting habitat at risk of conversion.

Deliverables

A final report summarizing the results of the research project will be delivered to the network by the end of March 2012. Preliminary results of the analysis will be presented at the LEARN workshop in Banff in June 2011. Results from the complete analysis are expected by the end of 2011, and could be presented as a poster at the ERCA network policy conference in Ottawa in winter 2012.