Farmland Values, Government Payments, and the Overall Risk to U.S. Agriculture: A Structural Equation-Latent Variable Model
AbstractAccording to Ricardian rent theory, the value of farm assets is equal to the discounted present value of future expected net rents from farm returns, and the discounted expected value of the land if converted to nonfarm development. Some recent research has considered modifying this standard present value model by acknowledging that returns from the market may be discounted at a different interest rate than returns from government payments (Goodwin, Mishra, and Ortal-Magne) and also that the discount rate itself may be time-varying. However, very little research has considered how changes in the overall risk to agriculture may affect farmland values. An exception is Moss, Shonkwiler and Schmitz (2004). We use time series panel data from the USDA for United States, 1960-2004 and a structural equations model with latent variables for the rate of return on farm assets and for the real risk-adjusted interest rate. We find that a secondary effect of agricultural policies that reduces the overall risk to agriculture may increase farmland values (and thus farm sector wealth). Government payments are offsetting the negative impact of high volatility of returns to farming.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida with number 6569.
Date of creation: 2008
Date of revision:
Contact details of provider:
Postal: 555 East Wells Street, Suite 1100, Milwaukee, Wisconsin 53202
Phone: (414) 918-3190
Fax: (414) 276-3349
Web page: http://www.aaea.org
More information through EDIRC
Farm Management; Land Economics/Use;
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sergio H. Lence & Ashok K. Mishra, 2003.
"The Impacts of Different Farm Programs on Cash Rents,"
American Journal of Agricultural Economics,
Agricultural and Applied Economics Association, vol. 85(3), pages 753-761.
- Lence, Sergio H. & Mishra, Ashok K., 2003. "The Impacts of Different Farm Programs on Cash Rents," Staff General Research Papers 11470, Iowa State University, Department of Economics.
- Bjornson, Bruce & Innes, Robert, 1992. "Risk And Return In Agriculture: Evidence From An Explicit-Factor Arbitrage Pricing Model," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 17(02), December.
- Ashok K. Mishra & Carmen L. Sandretto, 2002. "Stability of Farm Income and the Role of Nonfarm Income in U.S. Agriculture," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 24(1), pages 208-221.
- Barry K. Goodwin & Ashok K. Mishra & Fran�ois N. Ortalo-Magné, 2003. "What's Wrong with Our Models of Agricultural Land Values?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(3), pages 744-752.
- Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.