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Location, Land Quality, And Rental Volatility

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  • Saak, Alexander E.
  • Hennessy, David A.

Abstract

It appears to be widely believed that returns on low quality land are more variable than on high quality land. Using Ricardian rent as the measure of returns and sensitivity to output price as the measure of volatility, we investigate this null hypothesis for three different measures of quality. These are proximity to market, output productivity, and cost efficiency. In all cases, we identify precise conditions on the production technology such that rental volatility varies in a monotone manner with land quality. A method of econometric investigation of the relationship between rental volatility and land quality is developed and applied to Iowa cash rents data collected during 1994-2000. Our preliminary findings provide partial empirical support for the null hypothesis of an inverse relationship between quality and rental volatility with respect to commodity prices.

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Bibliographic Info

Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2001 Annual meeting, August 5-8, Chicago, IL with number 20747.

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Date of creation: 2001
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Handle: RePEc:ags:aaea01:20747

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Keywords: Land Economics/Use;

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  1. Falk, Barry L., 1991. "Formally Testing the Present Value Model of Farmland Prices," Staff General Research Papers 11093, Iowa State University, Department of Economics.
  2. Athey, S, 1996. "Comparative Statics under Uncertainty : Single Crossing Properties and Log-Supermodularity," Working papers 96-22, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. An, Mark Yuying, 1998. "Logconcavity versus Logconvexity: A Complete Characterization," Journal of Economic Theory, Elsevier, vol. 80(2), pages 350-369, June.
  4. Jean-Paul Chavas & Alban Thomas, 1999. "A Dynamic Analysis of Land Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 772-784.
  5. Chen, Yongmin, 1997. "Equilibrium Product Bundling," The Journal of Business, University of Chicago Press, vol. 70(1), pages 85-103, January.
  6. Fontnouvelle, P. de & Lence, Sergio H., 2002. "Transaction Costs and the Present Value," Staff General Research Papers 5263, Iowa State University, Department of Economics.
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