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Optimal farm size in an uncertain land market: the case of Kyrgyz Republic

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  • Sara Savastano
  • Pasquale Lucio Scandizzo

Abstract

This article applies a real options model 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, 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 suggest three main conclusions: (i) the combination of uncertainty and irreversibility is an important factor in land development decisions, (ii) farmer behavior is consistent with the continuous profit maximization model, and (iii) farming unit revenue tends to be positively related to farm size, once uncertainty is properly accounted for. Copyright (c) 2009 International Association of Agricultural Economists.

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Bibliographic Info

Article provided by International Association of Agricultural Economists in its journal Agricultural Economics.

Volume (Year): 40 (2009)
Issue (Month): s1 (November)
Pages: 745-758

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Handle: RePEc:bla:agecon:v:40:y:2009:i:s1:p:745-758

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Cited by:
  1. Brück, Tilman & Esenaliev, Damir & Kroeger, Antje & Kudebayeva, Alma & Mirkasimov, Bakhrom & Steiner, Susan, 2012. "Household Survey Data for Research on Well-Being and Behavior in Central Asia," IZA Discussion Papers 7055, Institute for the Study of Labor (IZA).
  2. Tubetov, Dulat & Maart, Syster Christin & Musshoff, Oliver, 2012. "Comparison of the investment behavior of Kazakhstani and German farmers: An experimental approach," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124650, Agricultural and Applied Economics Association.
  3. Ihli, Hanna Julia & Musshoff, Oliver, 2013. "Investment Behavior of Ugandan Smallholder Farmers: An Experimental Analysis," Discussion Papers 154775, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
  4. Tubetov, Dulat & Maart, Syster Christin & Musshoff, Oliver, 2012. "Comparison of the Investment Behavior of German and Kazakhstani Farmers: an Experimental Approach," Discussion Papers 122422, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
  5. Ihli, Hanna Julia & Musshoff, Oliver, 2013. "Understanding the Investment Behavior of Ugandan Smallholder Farmers: An Experimental Analysis," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150331, Agricultural and Applied Economics Association.

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