The second strand of the economic literature, on the contrary, sacrifices comprehensive sectoral representation for more elaborate treatment of intertemporal issues. This literature typically focuses on a particular land-intensive sector, where intertemporal issues are significant and cannot be ignored. One example of this literature is commercial forestry management in the context of uncertain fire risks and climate mitigation policies (Stavins, 1999; Sohngen and Mendelsohn, 2003; Richards and Stokes, 2004; Sohngen and Mendelsohn, 2007; Daigneault et al., 2010). Another example is natural land conservation decisions under irreversibility from loss of biodiversity and significant option values attached to the future stream of benefits from ecosystem services (Conrad, 1997, 2000; Bulte et al., 2002; Leroux et al., 2009).

In this study, we seek to bridge the gap between these two distinct strands of economic literatures. Specifically, we aim to assess the optimal path of global land use over next century, accounting for both sectoral competition for global land resources and intertemporal decisions under climate and technology uncertainties affecting crop yields and, therefore, also optimal land allocation. While we have no illusions that the world’s lands will be optimally allocated in the coming century, this path provides a useful guideline to understanding the impact of uncertain crop yields on a wide range of land use decisions at global scale. To our knowledge, this is the first study that integrates the decision making under uncertainty into a multi-sectoral economic model of global land use.

Our choice of uncertainty focuses on crop yield dynamics over the course of next century. Along with energy prices, regulatory policies, and technological change in food, timber and biofuels industries, this is one of four core uncertainties affecting competition for global land use Steinbuks and Hertel (2013). Quantification of uncertainty in potential crop yields focuses on two most important drivers recognized in agronomic and biophysical literatures (Lobell et al., 2009; Licker et al., 2010; Foley et al., 2011) - the technological progress in agriculture and climate change, and its associated impact on crop yields. Both sources underlying the uncertainty crop yield dynamics are very complex and hard to quantify. The advances of crop technology are very difficult to predict. There is a significant uncertainty about the extent to which one can exploit large and economically significant yield gaps in developing countries. Even less certain is the path of future innovations in plant breeding. Assessing the impact of climate change on agricultural yields is also very complicated task. There is a significant uncertainty in future GHG concentrations and their induced warming along the long run growth path of the global economy. The impacts of changes in temperature and precipitation on plant growth and the productivity of agriculture in different agro-ecological conditions are no more certain.

Our analysis builds on Steinbuks and Hertel (2013), who develop a dynamic, forward-looking global multi-sectoral partial equilibrium model to compare the effects of core known uncertainties on the optimal profile for global land use and land-based GHG emissions over the next century. They find that longterm uncertainty in energy prices dominates the climate impacts and climate policy uncertainties emphasized in prior research on global land use. However, 3