Real option valuation of abandoned farmland

Michi Nishihara

Review of Financial Economics, 2012, vol. 21, issue 4, 188-192

Abstract: This paper investigates the decision-making process of an owner of abandoned farmland that is currently restricted to agricultural use but will be available for nonagricultural use in the future. I make a real option valuation of the abandoned farmland taking prospective land conversion into consideration. Results from the model calibration demonstrate that a slight probability of land conversion greatly increases the land value and discourages the owner from cultivating the land. Further, the results show that a small gap in the anticipation of land conversion prevents the owner from selling or leasing the land to a more efficient farmer.

Keywords: Real option; Abandoned farmland; Land development; Land conversion (search for similar items in EconPapers)
JEL-codes: G13 Q15 R14 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:revfin:v:21:y:2012:i:4:p:188-192

DOI: 10.1016/j.rfe.2012.07.002

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