Hedonic Price Analysis of Easement Payments in Agricultural Land Preservation Programs

Abstract

More than 110 state and local governments have implemented agricultural land preservation programs to permanently preserve farmland. Assigning a value to the development rights to determine the cost of acquiring an easement on farm properties is difficult and can be costly. Data was collected on 409 preservation transactions from three Maryland counties and supplemented with farm-level spatial data via GIS. A hedonic price analysis is conducted to determine the marginal return to different farm characteristics using a spatial econometric model to correct for spatial correlation. Parcel characteristics such as distance to city and town, number of acres, prime soils and current land-use explain 80 percent of the variation in easement values. As expected, characteristics perform least well in explaining easement values in transfer of development right programs. This information can help formulate policy decisions and selection criteria to maximize the preservation of the agricultural economy and/or maximize public preferences. A supply curve is constructed using simulations that determine nonparticipant parcels’ easement values. To preserve the remaining eligible acres in the three counties, $167 million would be needed. This method can support programs choosing to use a point system rather than the more costly and difficult-to-apply standard appraisal methods.