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Real Options Valuation of Abandoned Farmland

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  • Michi Nishihara

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    (Graduate School of Economics, Osaka University)

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    Abstract

    I investigate the decision-making process of an owner of abandoned farmland that is currently restricted to agricultural use but will be available for nonagricultural use in the future. I find that a slight probability of land conversion greatly increases the land value and discourages the owner from cultivating the land. I also observe that a small gap in the anticipation of land conversion prevents the owner from selling or leasing the land to a more efficient farmer.

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    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/1109.pdf
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    Bibliographic Info

    Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 11-09.

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    Length: 12 pages
    Date of creation: Mar 2011
    Date of revision:
    Handle: RePEc:osk:wpaper:1109

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    Web page: http://www.econ.osaka-u.ac.jp/
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    Related research

    Keywords: real option; abandoned farmland; land development; land conversion.;

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    1. Capozza, Dennis R. & Helsley, Robert W., 1990. "The stochastic city," Journal of Urban Economics, Elsevier, vol. 28(2), pages 187-203, September.
    2. Capozza, Dennis & Li, Yuming, 1994. "The Intensity and Timing of Investment: The Case of Land," American Economic Review, American Economic Association, vol. 84(4), pages 889-904, September.
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