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Evaluating Farmland Investments Considering Dynamic Stochastic Returns And Farmland Prices

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  • Schnitkey, Gary D.
  • Taylor, C. Robert
  • Barry, Peter J.

Abstract

This paper examines farmland investment decisions using a stochastic dynamic programming framework. Consideration is given to the dynamic, stochastic nature of farmland returns, linkages between farmland returns and farmland prices, and the effects of the above dynamic factors on a farm's financial structure. Optimal decisions to purchase or sell farmland are found for a central Illinois farm with high quality farmland. Sizes and debt distributions are then determined, given that the optimal decision rule is followed. Decisions from the dynamic programming model also are compared to a capital budgeting model.

Suggested Citation

  • Schnitkey, Gary D. & Taylor, C. Robert & Barry, Peter J., 1989. "Evaluating Farmland Investments Considering Dynamic Stochastic Returns And Farmland Prices," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 14(1), pages 1-14, July.
    • Handle: RePEc:ags:wjagec:32457
    DOI: 10.22004/ag.econ.32457
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    References listed on IDEAS

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    Cited by:

    1. Novak, Frank S. & Schnitkey, Gary D., 1992. "The Effects of Including Bankruptcy of Dynamic Investment Decisions," WAEA/ WFEA Conference Archive (1929-1995) 321403, Western Agricultural Economics Association.
    2. Mjelde, James W. & Harris, Wesley D. & Schnitkey, Gary D. & Conner, J. Richard & Glover, Michael K. & Garoian, Lee, 1991. "Application of Stochastic Processes to Summarize Dynamic Programming Solutions," Departmental Reports 256831, Texas A&M University, Department of Agricultural Economics.
    3. Chi Su & Richard A. Schoney & James F. Nolan, 2023. "Buy, sell or rent the farm: succession planning and the future of farming on the Great Plains," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 18(3), pages 627-669, July.
    4. King, Robert P. & Lohano, Heman D., 2006. "Accuracy of Numerical Solution to Dynamic Programming Models," Staff Papers 14230, University of Minnesota, Department of Applied Economics.
    5. Heman D. Lohano & Robert P. King, 2009. "A Stochastic Dynamic Programming Analysis of Farmland Investment and Financial Management," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 57(4), pages 575-600, December.
    6. Lohano, Heman Das, 2002. "A Stochastic Dynamic Programming Analysis of Farmland Investment and Financial Management," Faculty and Alumni Dissertations 309035, University of Minnesota, Department of Applied Economics.

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    Land Economics/Use;

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