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Transaction Costs and the Present Value Model of Farmland: Iowa, 1900-1994

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  • Lence, Sergio H.
  • Miller, Douglas

Abstract

The present study investigates whether the farmland "constant-discount-rate present-value-model (CDR-PVM) puzzle" is due to transaction costs. The theoretical implications of transaction costs for the CDR-PVM of farmland are discussed, and two bootstrap tests of such implications are introduced and applied to Iowa farmland prices and rents. Empirical results regarding the validity of the CDR-PVM in the presence of typical transaction costs are ambiguous. Econometric tests indicate that the CDR-PVM is consistent with typical transaction costs assuming a one-period holding horizon, but not when an infinite-holding horizon is hypothesized.

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 1535.

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Date of creation: 01 May 1999
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Publication status: Published in American Journal of Agricultural Economics, May 1999, vol. 81 no. 2, pp. 257-272
Handle: RePEc:isu:genres:1535

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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Cited by:
  1. Xiaodong Du & David A. Hennessy & William M. Edwards, 2007. "Determinants of Iowa Cropland Cash Rental Rates: Testing Ricardian Rent Theory," Center for Agricultural and Rural Development (CARD) Publications 07-wp454, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  2. Mishra, Ashok K. & Moss, Charles B. & Erickson, Kenneth W., 2004. "Effect Of Debt Solvency On Farmland Values: A Panel Cointegration Approach," 2004 Annual meeting, August 1-4, Denver, CO 20261, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  3. Painter, Marvin J., 2003. "Efficient Investment in Saskatchewan Farmland," 14th Congress, Perth, Western Australia, August 10-15, 2003 24316, International Farm Management Association.
  4. Painter, Marvin J., 2002. "Efficient Investment in Saskatchewan Farmland," 13th Congress, Wageningen, The Netherlands, July 7-12, 2002 6955, International Farm Management Association.

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