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The Effects of Potential Land Development on Agricultural Land Prices

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Author Info
Stavins, Robert
Plantinga, Andrew
Lubowski, Ruben

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Abstract

We conduct a national-scale study of the determinants of agricultural land values to better understand how current farmland prices are influenced by the potential for future land development. The theoretical basis for the empirical analysis is a spatial city model with stochastic returns to future land development. From the theoretical model, we derive an expression for the current price of agricultural land in terms of annual returns to agricultural production, the price of recently developed land parcels, and expressions involving model parameters that are represented in the empirical model by nonlinear functions of observed variables and parameters to be estimated. We estimate the model of agricultural land values with a cross-section on approximately three thousand counties in the contiguous U.S. The results provide strong support for the model, and provide the first evidence that option values associated with irreversible and uncertain land development are capitalized into current farmland values. The empirical model is specified in a way that allows us to identify the contributions to land values of rents from near-term agricultural use and rents from potential development in the future. For each county in the contiguous U.S., we estimate the share of the current land value attributable to future development rents. These results give a clearer indication of the magnitude of land development pressures and yield insights into policies to preserve farmland and associated environmental benefits.

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Paper provided by Resources For the Future in its series Discussion Papers with number dp-02-11-.

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Date of creation: 01 Mar 2002
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  1. Wolfram Schlenker & W. Hanemann & Anthony Fisher, 2004. "Will U.S. Agriculture Really Benefit from Global Warming? Accounting for Irrigation in the Hedonic Approach," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series 941, Department of Agricultural & Resource Economics, UC Berkeley. [Downloadable!]
  2. Michael Greenstone & Olivier Deschenes, 2006. "The Economic Impacts of Climate Change: Evidence from Agricultural Profits and Random Fluctuations in Weather," Working Papers 2006.6, Fondazione Eni Enrico Mattei. [Downloadable!]
    Other versions:
  3. Anderson, Kathryn & Weinhold, Diana, 2005. "Do Conservation Easements Reduce Land Prices? The Case of South Central Wisconsin," Staff Paper Series 484, University of Wisconsin, Agricultural and Applied Economics. [Downloadable!]
    Other versions:
  4. Holloway, Garth & Lacombe, Donald & Lesage, James P., 2006. "Spatial Econometric Issues for Bio-Economic and Land-Use Modeling," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25525, International Association of Agricultural Economists. [Downloadable!]
    Other versions:
  5. Lynch, Lori & Gray, Wayne & Geoghegan, Jacqueline, 2007. "An Evaluation of Working Land and Open Space Preservation Programs in Maryland: Are They Paying Too Much?," Working Papers 6887, University of Maryland, Department of Agricultural and Resource Economics. [Downloadable!]
  6. Steven Stillman, 2005. "Examining Changes in the Value of Rural Land in New Zealand between 1989 and 2003," Urban/Regional 0509015, EconWPA. [Downloadable!]
    Other versions:
  7. Lin, Haixia & Wu, Junjie, 2005. "Conservation Policy and Land Value: The Conservation Reserve Program," 2005 Annual meeting, July 24-27, Providence, RI 19417, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  8. Jason Winfree & Jill McCluskey & Ron Mittelhammer, 2006. "Buyer-Type Effects in Conservation and Preservation Property Values," The Journal of Real Estate Finance and Economics, Springer, vol. 33(2), pages 167-179, September. [Downloadable!] (restricted)
  9. Duvivier, Romain & Gaspart, Frederic & de Frahan, Bruno Henry, 2005. "A Panel Data Analysis of the Determinants of Farmland Price: An Application to the Effects of the 1992 Cap Reform in Belgium," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24577, European Association of Agricultural Economists. [Downloadable!]
  10. Salois, Matthew J. & Moss, Charles B., 2008. "Testing for Hyperbolic Discounting in a Panel of U.S. Agriculture," 2008 Annual Meeting, February 2-6, 2008, Dallas, Texas 6808, Southern Agricultural Economics Association. [Downloadable!]
  11. Livanis, Grigorios & Moss, Charles B. & Breneman, Vincent E. & Nehring, Richard F., 2005. "Urban Sprawl and Farmland Prices," Working Papers 15657, University of Florida, International Agricultural Trade and Policy Center. [Downloadable!]
    Other versions:
  12. Olivier Deschenes & Michael Greenstone, 2004. "The Economic Impacts of Climate Change: Evidence from Agricultural Profits and Random," NBER Working Papers 10663, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Horowitz, John K. & Lynch, Lori & Stocking, Andrew, 2007. "Competition-Based Environmental Policy: An Analysis of Farmland Preservation in Maryland," Working Papers 7340, University of Maryland, Department of Agricultural and Resource Economics. [Downloadable!]
  14. Stavins, Robert & Plantinga, Andrew & Lubowski, Ruben, 2003. "Determinants of Land-Use Change In the United States 1982-1997," Discussion Papers dp-03-47, Resources For the Future. [Downloadable!]
  15. Winfree, Jason A. & McCluskey, Jill J. & Mittelhammer, Ron C., 2002. "An Option Value Approach To Valuing Preservation Properties," 2002 Annual Meeting, July 28-31, 2002, Long Beach, California 36619, Western Agricultural Economics Association. [Downloadable!]
  16. Sylvia Dixon & David C. Maré, 2005. "Changes in the Maori Income Distribution: Evidence from the Population Census," Working Papers 05_06, Motu Economic and Public Policy Research. [Downloadable!]
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  17. Pavel Ciaian & d'Artis Kancs, 2009. "The Capitalisation of Area Payments into Farmland Rents: Theory and Evidence from the New EU Member States," EERI Research Paper Series EERI_RP_2009_04, Economics and Econometrics Research Institute (EERI). [Downloadable!]
  18. Massimiliano Cali & Carlo Menon, 2009. "Does Urbanisation Affect Rural Poverty? Evidence from Indian Districts," SERC Discussion Papers 0014, Spatial Economics Research Centre, LSE. [Downloadable!]
  19. Philippe Le Goffe & Julien Salanié, 2005. "Le droit d’épandage a-t-il un prix ? Mesure sur le marché foncier," Cahiers d'Economie et Sociologie Rurales, INRA Department of Economics, vol. 77, pages 36-64. [Downloadable!]
  20. Liu, Xiangping & Lynch, Lori, 2006. "Do Agricultural Preservation Programs Affect Farmland Conversion? Evidence from a Propensity Score Matching Estimator," Working Papers 28569, University of Maryland, Department of Agricultural and Resource Economics. [Downloadable!]
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