Extensive and Intensive Agricultural Supply Response

Interest in agricultural supply response increased dramatically after model predictions of land use change were used to estimate biofuel greenhouse gas emissions. The models divide crop response into higher yield — the intensive margin — or more land — the extensive margin. Input adjustments are assumed to drive yield response. But most yield changes result from adoption of technology. Regulators and modelers assume that increased harvested area implies conversion of land from forest or pasture to crops. With the notable exception of African countries, recent expansion of harvested area is due to more intensive use of existing agricultural land through multiple cropping and technology improvement. A lack of response at the extensive margin is consistent with inelastic estimates of land use change estimated by using time-series data. Option value is one reason for this inelastic response. Predictions of land use change based on cross-section data imply much higher land use elasticities than are consistent with recent data