Bringing the real world into economic analyses of land use value: Incorporating spatial complexity

The paper reviews recent developments in the incorporation of real-world spatial issues into the economic appraisal of land use change. The opening discussion introduces non-economists to the concepts underpinning the approach. The remainder of the paper uses a case study approach (concerning potential conversions from agriculture into multi-purpose woodland) to illustrate the quantification and valuation of land use change. The application of geographical information system (GIS) routines allows spatial complexity to be incorporated within the analysis. Key concepts are introduced such as making allowance for subsidies, the marginal value concept, and the valuation of non-market externalities such as carbon storage of open-access recreation. The case study also shows that, if issues such as spatial variation and externalities are ignored, sole reliance upon market prices can lead to perverse outcomes which are actually to the detriment of society.