Resumen de Intensive margin of land use in CGE models – Reviving CRESH functional form
In this study I suggest that computable general equilibrium (CGE) studies of land use change could benefit from more careful modeling of the intensive margin. That requires more attention placed on the production function.
I support my claim with empirical estimation and corresponding CGE simulations. The empirical data is a farm enterprise panel of Finnish farms for years 2004–2009. I run two short run test simulations with the ORANI-G model: (1) land productivity improvement, and (2) decrease in agricultural subsidies.
The empirical results favor the CRESH functional form over the prevailing Cobb–Douglas and CES forms. The CGE simulations show that the results are sensitive to the functional form choice. CRESH portrays weaker changes in land use in the first simulation than its alternatives. In the second simulation CRESH portrayed more land use adjustment than the CES alternatives. Cobb–Douglas was clearly the worst alternative in the empirical part and showed more diverging results in the simulation results as well. Accordingly, an inadequate treatment of intensive margin in land use CGE models might yield misleading conclusions and faulty policy recommendations.
