A Dynamic Stochastic Programming Framework for Modeling Large Scale Land Deals in Developing Countries
AbstractThe attractiveness of agricultural land available in developing countries has markedly increased in the last few years. Driven by rising and highly volatile prices for agricul- tural commodities, large land acquisitions have been undertaken by foreign investors. We formalize the discussion surrounding such large scale land deals through a dynamic stochastic programming model. Within this framework, we first determine the value of a land development project under uncertainty about prices for agricultural commodi- ties, political risk and irreversible capital investment. Second, given an exogenously set corporate tax rate, we determine, in both a cooperative and a non-cooperative set- ting, the optimal land rental payment. We show that 1) the optimal policy scheme is equivalent to a risk-sharing contract, 2) trading o¤ rental payment with tax revenue is detrimental for both total project value and domestic benefits and 3) taxation has a neutral impact on long-run the land development pace. We complete our study by illustrating our results through an empirical application based on observed individual land deals from Ethiopia and simulations for a specific crop in a selected region that has recently been targeted by foreign investments.
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Bibliographic InfoPaper provided by Agricultural and Applied Economics Association in its series 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. with number 150190.
Date of creation: 01 Jun 2013
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foreign direct investment; land leasing; real options; nash bargaining; International Development; Land Economics/Use; Research Methods/ Statistical Methods; C61; D81; F23; Q24; Q58;
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-24 (All new papers)
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