Calibration of a Land Cover Supply Function Using Transition Probabilities

In the GTAP-AEZ framework the supply of land across different uses is determined through a Constant Elasticity of Transformation (CET) supply function, where land cover is allocated across forestry, grazing and crops, followed by the allocation of harvested area across cropping activities. This research memorandum describes the empirically based calibration strategy used to determine the CET value for the land cover allocation nest dealing with the broader three commercial uses, and examines how land use responsiveness and the parameter value evolve over time. The calibration is accomplished using the GTAP Land Use Database and time paths of land quantities by use over a 100 year period. These land quantity projections are, in turn, based on matrices of land use transition probabilities and own return elasticities of transition probabilities for the USA. We find that over time there is a rise in the land use response to increases in own-returns and in own return elasticities, while there is a fall in the calibrated CET value. The value of the CET parameter decreases at a decreasing rate every five-year period, although it can be approximated by a linear relationship in the short to medium run. We can use this linear interpolation to estimate the average CET parameter associated with any desired length of run.