Exit Timing Decisions under Land Speculation and Resource Scarcity in Agriculture

Ram Ranjan and Sorada Tapsuwan

No 5998, 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: This paper explores the concept of agricultural resilience in the context of climate change related water scarcity. Specifically, the impact of water scarcity on agricultural production is analyzed to derive the timing of exit decisions for farmers faced with the prospect of declining profitability in agriculture but increasing benefits from land rezoning in future. The prospects of land rezoning are modeled as a poison process which may or may not be influenced by farmer’s water abstraction decisions. Selling out of agriculture before land rezoning has an impatience cost as the farmer does not gain the maximum speculative rewards. The analysis highlights the role of such speculative rewards in making farmers resilient to declining profitability in agriculture and also identifies the circumstances under which the water prices may be an ineffective policy tool for allocating water. An empirical application is performed using the above model for the case of a drought prone region in Western Australia.

Keywords: Environmental Economics and Policy; Farm Management; Land Economics/Use; Resource/Energy Economics and Policy (search for similar items in EconPapers)
Pages: 30
Date: 2008
New Economics Papers: this item is included in nep-agr and nep-env
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea08:5998

DOI: 10.22004/ag.econ.5998

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