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

Pasquale Scandizzo and Sara Savastano

No 52844, 111th Seminar, June 26-27, 2009, Canterbury, UK from European Association of Agricultural Economists

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: Agricultural and Food Policy; Land Economics/Use; Resource /Energy Economics and Policy (search for similar items in EconPapers)
Pages: 26
Date: 2009-08-20
New Economics Papers: this item is included in nep-agr, nep-cfn and nep-tra
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Citations: View citations in EconPapers (19)

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Working Paper: Optimal Farm Size under an Uncertain Land Market: the Case of Kyrgyz Republic (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:eaa111:52844

DOI: 10.22004/ag.econ.52844

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