Optimal Farm Size under an Uncertain Land Market: the Case of Kyrgyz Republic

Sara Savastano and Pasquale Scandizzo

No 154, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: The paper illustrates a theoretical model of real option value applied to the problem of land development. Making use of the 1998-2001 Kyrgyz Household Budget Survey, we show that when the hypothesis of decreasing return to scale holds, the relation between the threshold value of revenue per hectare and the amount of land cultivated is positive. In addition to that, the relation between the threshold and the amount of land owned is positive in the case of continuous supply of land and negative when there is discontinuous supply of land. The direct consequence is that, in the first case, smaller farms will be more willing to rent land and exercise the option where, in the second case, larger farms will exercise first. The results corroborate the findings of the theoretical model and suggest three main conclusions: (i) the combination of uncertainty and irreversibility is a significant factor in the land development decisions, (ii) farmers’ behaviour is consistent with the continuous profit maximization model, (iii) farming unit revenue tends to be positively related to farm size, once uncertainty is properly accounted for.

Keywords: Option value theory; Farm size; Uncertainty; irreversibility. (search for similar items in EconPapers)
JEL-codes: O13 Q12 Q15 Q18 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2010-05-28, Revised 2010-05-28
New Economics Papers: this item is included in nep-agr, nep-dev and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://ceistorvergata.it/RePEc/rpaper/RP154.pdf Main text (application/pdf)

Related works:
Working Paper: Optimal Farm Size under an Uncertain Land Market: the Case of Kyrgyz Republic (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rtv:ceisrp:154

Ordering information: This working paper can be ordered from
CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
https://ceistorvergata.it

Access Statistics for this paper

More papers in CEIS Research Paper from Tor Vergata University, CEIS CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma. Contact information at EDIRC.
Bibliographic data for series maintained by Barbara Piazzi ().