Common values and unobserved heterogeneity in farmland auctions in Germany

Stefan Seifert and Silke Hüttel

No 21 (2020), FORLand Working Papers from Humboldt University Berlin, DFG Research Unit 2569 FORLand "Agricultural Land Markets – Efficiency and Regulation"

Abstract: In this paper, we test for the existence of a common component in agricultural land auctions in eastern Germany during the price boom 2007-2018 and discuss respective policy implications. Using a large, detailed dataset of auctions, we can rely on professional appraisals of the auctioned good that are privy to the seller to control for unobserved heterogeneity. We derive a new approach to disentangle valuations from observed and unobserved heterogeneity across auctions. For validation purposes we provide several model specifications; based on all models, we strongly reject purely private valuations. Based on the rich identification strategy, we conclude the existence of a common component in these auctions to be very likely. Our results first underline the importance of an adequate model specification to analyze farmland auctions. Second, from a policy perspective, the implied potential for a winner's curse can be seen as a warning sign for the sector.

Keywords: Farmland auctions; common values; unobserved heterogeneity (search for similar items in EconPapers)
JEL-codes: C57 D44 Q12 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-agr and nep-des
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:forlwp:212020

DOI: 10.18452/21172

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