Evolving environmental policies and asset values: nutrient trading schemes in The Netherlands

In 1986 the Dutch government started to regulate animal agriculture through the imposition of the phosphate based manure production rights (quotas). Mandatory production control programs affect asset values. Capitalization theory postulates the value of any asset is equal to the present value of its expected future returns. We es timated a reduced form derived land demand model using pooled cross section-time series data. The r esults s how the phosphate quota system increases the price of agricultural land in the surplus region where the quota is binding but not in the deficit region where the quota is not binding. Second, the increase in the cost of environmental compliance in the surplus region relative to that in the deficit region generated an eroding effect on the existing gap in the land rents and consequently land prices between regions.