Land Market Models
Land Market Preferences and Land Use Change: An Agent Based Model Incorporating Procedural Utility
Land use change is a phenomenon that includes exchanging a physical commodity (land) through a set of agreed mechanisms (land markets). Both the physical land and the markets play a role in forming an individual’s economic decision to exchange a piece of land. Despite such fact, economic theories have not equally considered both physical outputs and procedures (Screpanti & Zamagni, 2005).
Traditional economic theories initially ignored procedures; they hypothesised that an individual is a rational being that seeks maximum physical benefit (Screpanti & Zamagni, 2005). This quantitative benefit is conceptualised as utility (Emil Kauder, 1965) – I label it as ‘output utility’. Output utility was limited to material benefit in its early conceptualisation, but it extended to procedures due to criticism towards traditional economics (Screpanti & Zamagni, 2005). However, it only considered procedures through risk premium and information cost values (Pratt & Grabowski, 2014). These are quantitative prices that discard the procedural experience and subjective fairness that is embedded in a land. Such experiences may not be relevant in contexts with relatively similar land markets (e.g. Buitelaar, 2007), but they are critical in the formal-informal contexts of the Global South.
Accordingly, this research aims to identify the effect preferences towards land market procedures on land choices. It showcases such effect through land use Agent Based Models (ABMs). This poses a challenge as land use ABMs commonly apply output utility. Hence, there is a need to formulate a theoretical approach that conceptualises market preferences to allow for (1) empirically observing them in quantitative terms; and (2) incorporating them in ABMs applying output utility approaches.
This research proposes using procedural utility to capture market preferences. Procedural utility is concerned with the process of reaching an economic goal (Frey et al., 2004). It ties its achievement to the satisfaction of three innate needs: (1) autonomy (being causal); (2) relatedness (being a member of a larger group); (3) competence (being effective) (Frey, 2008). Such innate needs are quantitatively observable through four motivational categories existing on a continuum scale: (1) extrinsic (material benefit); (2) introjected (avoid guilt); (3) identified (alignment with one’s moral values); and (4) integrated (enjoyment of the process) (Ryan & Connell, 1989). Each underlying reason for using a land market should align with one of the aforementioned motivations. By scaling each from 0 to 4, market preferences can be aggregated to a quantitative procedural utility value that can be compared to output utility.
Thereby, this research formulates an exploratory ABM incorporating procedural and output utility. The model includes two markets types differently preferred by agents (see Figure 1). Agents age, and they relocate to a plot within their neighbourhood while considering a weight-controlled procedural utility. The ABM’s output is tested by considering satisfaction (agent being in its preferred market) and the net-growth (net number of agents occupying plots). The results indicate that higher procedural utility weights lead to (1) higher satisfaction despite having agents randomly search for plots and (2) higher net-growth due to more successful relocations.
Figure 1. Exploratory ABM Sample Initialisations
The research also applies the ABM in the context of Greater Cairo (see Figure 2), Egypt – a 21million inhabitant city with complex formal-informal land markets (World Population Review, 2020). Initial observations indicate that market preferences do affect land choices (Gamal, 2022). Upon running the ABM using such observations, the results show similar trends to the high procedural utility weight runs in the exploratory ABM.
Figure 2. Greater Cairo ABM Initialisation
In reflection, policy makers can make plots more or less attractive by controlling the market procedures that govern them. The proposed ABMs can be used as a decision support tool to guide the market mechanism selection process.
Buitelaar, E. (2007). The Cost of Land Use Decisions (B. P. Ltd (ed.)). https://doi.org/10.1002/9780470692226.ch1
Emil Kauder. (1965). A History of Marginal Utility Theory. Princeton Universiy Press.
Frey, B. S. (2008). Happiness A revolution in Economics (H.-W. Sinn (ed.)). MIT Press.
Frey, B. S. ., Benz, M., & Stutzer, A. (2004). Introducing Procedural Utility : Not Only What , but Also How Matters. Journal of Institutional and Theoretical Economics ( JITE ), 160(3), 377–401. https://www.jstor.org/stable/40752468
Gamal, Y. (2022). Urban Infrastructuring. In D. Iossifova, A. Gasparatos, S. Zavos, Y. Gamal, & Y. Long (Eds.), Land Market Procedures and Market Preferences in Land Use Change: The Case of Greater Cairo (pp. 81–98). Springer Nature Singapore. https://doi.org/10.1007/978-981-16-8352-7
Pratt, S. P., & Grabowski, R. J. (2014). Cost of capital: applications and examples (Fifth Edit). John Wiley & Sons.
Ryan, R. M., & Connell, J. P. (1989). Perceived locus of causality and internalization: Examining reasons for acting in two domains. Journal of Personality and Social Psychology, 57(5), 749–761. https://doi.org/http://dx.doi.org/10.1037/0022-3522.214.171.1249
Screpanti, E., & Zamagni, S. (2005). An Outline of the History of Economic Thought. In An Outline of the History of Economic Thought (Second Edi). Oxford University Press. https://doi.org/10.1093/0199279144.001.0001
World Population Review. (2020). Cairo Population 2020. https://worldpopulationreview.com/world-cities/cairo-population
Outputs [P] [C] [O] [E]
[C2] Gamal, Y & Pinto, N 2019, Reinterpreting Procedural Utility in Land Use Frameworks: A Quantitative Approach. in ECTQG The 21st European Colloquium on Theoretical and Quantitative Geography: Book of Abstracts. Luxembourg Institute of Socio-Economic Research, Mondorf-les-Bains, Luxembourg, pp. 149-150. <http://www.ectqg.eu/assets/download/ECTQG2019_Programme-and-book-of-abstracts.pdf?submit=Download+the+final+programme+and+book+of+abstracts>
The project is funded by a doctoral scholarship under the Newton-Musharafa fund NMM13/18 by the ministry of Culture, Egypt and the British Council in Egypt.