Public goods in rural areas as endogenous drivers of income: Developing a framework for country landscape valuation

Abstract

Rural areas are where many environmental and cultural public goods occur, creating a country landscape. Their agro-ecological infrastructure delivers things people directly value, such as food, fibre and energy, but the market fails when it comes to the valuation of public goods. For this purpose, indirect valuation methods are used, but these encounter many methodological problems. The aim of this study is to create a conceptual framework for the economic rent valuation (ERV) method, which estimates the economic rent resulting from the random endogenous influences of public goods on production factors in rural areas. The ERV method attempts to reduce the biases of the market-based and contingent valuation methods that result from the model misspecification and unrevealed preferences, and advocates for adoption of the variance component model. The article also presents an illustrative application of ERV based on the case of the West Pomeranian region of Poland, which reveals the potential advantages of ERV.