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Passive farming and land development: a real option approach

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  • Di Corato, Luca

    (Department of Economics, Swedish University of Agricultural Sciences)

  • Brady, Mark

    (Department of Economics, Swedish University of Agricultural Sciences)

Abstract

We examine the impact that subsidies paid to passive farmers have on the lease of land and on the speed of land development. First, we find that, even if delaying land development, paying passive farmers increases the value of the land. Second, when bargaining for the lease of land, we show that the agreement between the parties is conditional on an underlying development project passing a threshold level in terms of profitability. Third, we identify the conditions leading to a Pareto improvement. Last, we illustrate our findings by considering the establishment of an energy crop on leased land.

Suggested Citation

  • Di Corato, Luca & Brady, Mark, 2016. "Passive farming and land development: a real option approach," Working Paper Series 2016:4, Swedish University of Agricultural Sciences, Department Economics.
    • Handle: RePEc:hhs:slueko:2016_004
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    Cited by:

    1. Mark V. Brady & Jordan Hristov & Christoph Sahrbacher & Torben Söderberg & Fredrik Wilhelmsson, 2017. "Is Passive Farming A Problem for Agriculture in the EU?," Journal of Agricultural Economics, Wiley Blackwell, vol. 68(3), pages 632-650, September.
    2. Luca Di Corato & Dimitrios Zormpas, 2022. "Investment in farming under uncertainty and decoupled support: a real options approach," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 49(4), pages 876-909.
    3. Ruiqing Miao & David A. Hennessy & Hongli Feng, 2022. "Grassland easement evaluation and acquisition with uncertain conversion and conservation returns," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 70(1), pages 41-61, March.
    4. Adewale Henry Adenuga & Claire Jack & Ronan McCarry, 2021. "The Case for Long-Term Land Leasing: A Review of the Empirical Literature," Land, MDPI, vol. 10(3), pages 1-21, March.

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    More about this item

    Keywords

    Real Options; Land development; Passive Farming; Nash Bargaining;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns

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