PR - EVALUATING LAND PRICES UNDER ENVIRONMENTAL REGULATION

Abstract

In this paper we present a novel application of the difference-in- difference method to analyse the effect of regulation on agricultural land prices in the case of implementation of mandatory riparian buffer zones. The buffer zones are adjacent to streams and lakes and are designated as part of the Danish implantation of the EU Water Framework Directive. The buffer zone regulation existed from 2012 to 2015 when the regulation was suspended. Using a hedonic price model we do a difference- and-difference estimation of the development in regional farm land prices for farms with land subject to the buffer zone regulation compared to farms not subject to buffer zones. A number of model specifications are tested but no significant effect on land prices of the buffer zone regulation is identified. This is explained by the fact, that the regulation was based on a subsidy scheme offering flat rate compensation to farmers obliged to establish buffer zones. Thus, results suggest that due to the subsidies, farmers’ expectations for the future economic rent are unchanged and, thus, no significant effects on the land prices are identified.

Key words: land, buffer, zone, environmental, regulation