Welfare Gains from Market Integration Under Competing Land Uses
The welfare gains from agricultural market integration are conventionally measured by the capitalization of market access into farmland values – an aggregate measure that omits parcels converting to non-agricultural use, which exit the Census of Agriculture’s sampling frame and render farmland values a lower-bound measure of welfare gains. Using the staggered rollout of the U.S. Interstate Highway System (1940-2002), we trace where the gains accrued. Farmland values rose about 11% after a highway arrived, masking a divergence between value and cultivated acreage: the least-suitable land was retained through a shift toward livestock, middle-suitability land lost crop acreage to conversion where development pressure bound, and the best land capitalized the development option into farmland value. Combining this heterogeneity with a Frechet productivity model and a minimum-distance GMM over development-pressure bins, we identify the parcels the aggregate omits and value them at observed developer bids at as much as $195-210 billion, concentrated on the high-development pressure fringe.
Status: August 2026