Supply response and the land conversion process in the rural-urban fringe

The objective of this research was to investigate the nature of landowner supply-response behavior as it related to the land conversion process in the rural-urban fringe. Emphasis was placed on the derivation of the farmer's dynamic supply-response curve of agricultural land for urban uses since the nature of this curve has important implications for land-use policy alternatives in fringe areas.

It was argued that the aggregate land market approach to land use policy analysis in the rural-urban fringe is generally inappropriate for practical and theoretical reasons. Consequently, a disaggregated micro model based on the proprietary land unit was developed to explain the land conversion process. The theoretical model is composed of three cost and two demand components. The interaction of these components results in a dynamic supply-response curve of agricultural land for urban uses which is discontinuous over a wide range for many classes of landowners.

The theoretical model was tested through discriminant analyses of data collected from a study area where there exists heavy urban demand for agricultural land. The data included information on landowners over time, physical characteristics of the tracts of land, transfer information and· various demand variables. Results of the empirical analyses provided support for the hypotheses incorporated into the theoretical model. Specifically, empirical evidence was found to support the hypotheses that (1) individual farmers' supply response curves are discontinuous over a wide range, (2) farmers' fixed capital investment is a primary cause of the discontinuity, (3) farmers with less fixed capital investment will generally have more elastic supply-response curves which are discontinous over a smaller range, and (4) speculators' supply-response curves will generally be highly elastic and continuous. Various implications of the theoretical model for land-use policy analysis and land-use patterns in the rural-urban fringe are discussed. Particular attention was given to an analysis of Virginia's use-value assessment program based on the theoretical model.

It was found that such a program will not "save" agriculture in fringe areas but will raise land price and subsidize speculative activities. Such a program might be more successful in achieving its stated goals if it were implemented in areas on the outlying edge of the rural-urban fringe.