Agricultural land often yields sig- nificant amenity benefits that may not be re- flected in the prevailing allocation of land be- tween agricultural and nonagricultural uses. This paper introduces a simple supply-demand model that incorporates these benefits in the de- termination of optimal land allocation. Three- stage least squares and county-level data are used to estimate the supply and demand param- eters. These estimates confirm the plausibility of the conceptual model. Results from the con- tingent valuation literature illustrate the extent of underallocation of land to agriculture due to existing institutional conditions. Some correc- tive measures and their distributional effects are discussed and quantified. (JEL Q24)