Transaction Costs and the Present Value Model of Farmland: Iowa, 1900-1994

Sergio Lence and Douglas Miller

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: The present study investigates whether the farmland "constant-discount-rate present-value-model (CDR-PVM) puzzle" is due to transaction costs. The theoretical implications of transaction costs for the CDR-PVM of farmland are discussed, and two bootstrap tests of such implications are introduced and applied to Iowa farmland prices and rents. Empirical results regarding the validity of the CDR-PVM in the presence of typical transaction costs are ambiguous. Econometric tests indicate that the CDR-PVM is consistent with typical transaction costs assuming a one-period holding horizon, but not when an infinite-holding horizon is hypothesized.

Date: 1999-05-01
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Published in American Journal of Agricultural Economics, May 1999, vol. 81 no. 2, pp. 257-272

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Journal Article: Transaction Costs and the Present Value Model of Farmland: Iowa, 1900–1994 (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:1535

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