Intergenerational provision of a renewable public good produced by land

Concern about conserving natural resources often refers to the welfare of future generations. This research investigates policies that use tax revenue to lease land for production of a renewable public good and examines whether market responses change the implied welfare of older generations relative to younger generations. The motivation is the allocation of wetlands to privately produced and consumed agricultural products or to flocks of waterfowl that can be regarded as a public good. Waterfowl are considered a renewable public good because each year's population is related to the prior year's population through the parent stock, as well as land available for habitat.;An overlapping generations model with an investment market in land is used to investigate tax policies that efficiently fund land reallocation. In the steady state a lump sum tax on only the younger generation decreases savings and increases the interest rate, thus increasing the relative social welfare weight of the old implied by the competitive equilibrium. In contrast, lump sum taxation of only the older generation indeterminately affects savings, the interest rate, and the implied relative welfare weight.;Optimal lump sum taxation of both generations achieves a socially optimal land allocation in the presence of an exogenous social discount factor, with an interest rate equal to the social rate of time preference. This policy may require taxing one generation and directing revenue to both land leasing and a transfer to the other generation, depending on the private and social discount factors and the output shares of labor and privately used land. In general, an increase in the social discount rate indicates an increase in the lump sum tax of the older generation.;Land reallocations increase the marginal product of privately used land as they decrease its quantity, apart from the funding mechanism. These offsetting effects permit reallocations to be viewed as a land rental tax that may either increase or decrease the implied net interest rate of land investments.