Farmland sales under returns and price uncertainty

Jana Plogmann, Oliver Musshoff, Martin Odening and Matthias Ritter

Economic Modelling, 2022, vol. 117, issue C

Abstract: This paper investigates the observed heterogeneity in the liquidity of agricultural land markets. We adopt a real options model to determine the value of an opportunity to sell farmland and derive the optimal disinvestment triggers. A proportional hazards model is applied to estimate the duration between land sales in Germany and test the implications of the real options model. In contrast to expectations, we find an ambiguous effect of returns and price volatility on the optimal timing of land sales. There is no evidence that non-agricultural investors buy and sell land more frequently than farmers. Our results contribute to the current discussion on land market regulations, one major point of which is capping land prices. According to our results, such policies could increase the rent–price ratio and thus discourage land sales. In turn, the land supply would be reduced, causing further price pressure on farmland markets.

Keywords: Cox proportional hazards model; Farmland supply; Land market liquidity; Land price uncertainty; Real options model; Duration model (search for similar items in EconPapers)
JEL-codes: C41 G12 Q15 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:117:y:2022:i:c:s0264999322002814

DOI: 10.1016/j.econmod.2022.106044

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