Farm household modelling for estimating the effectiveness of price instruments in land use policy

Abstract

A farm household modelling approach using linear programming is presented that integrates biophysical and socioeconomic information for simulating micro-level responses to specific changes in the socioeconomic environment. The linear programming model includes separate modules for prices, production activities and expenditures from which the objective function is derived. Moreover, the model comprises a production structure adjustment coefficient to account for incomplete specification of the objectives of the farmer in the objective function. The model was calibrated for one specific farm type in the Atlantic Zone of Costa Rica, a peasant household growing basic grains and other food crops for household consumption and sale, and applied to calculate effects of several price instruments. The results, in terms of response multipliers, give an indication of the pace and direction of land use change at the micro-level as a result of (induced) change in the socioeconomic environment. The overall effect of an increase in biocide prices (taxation) is a change in cultivated crops and decrease in biocide use, but at the expense of a reduction in income. Increasing fertilizer prices affects income and utility positively. Thus, changes in fertilizer prices would seem to be an appropriate instrument to induce land use modifications.