Real Options Valuation of Abandoned Farmland
AbstractI 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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Bibliographic InfoPaper 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.
Length: 12 pages
Date of creation: Mar 2011
Date of revision:
real option; abandoned farmland; land development; land conversion.;
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- 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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- Capozza, Dennis R. & Helsley, Robert W., 1990. "The stochastic city," Journal of Urban Economics, Elsevier, vol. 28(2), pages 187-203, September.
- 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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