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Heterogenous Expectations and Farmland Prices

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  • Keith C. Brown
  • Deborah J. Brown

Abstract

This paper examines the effect of heterogenous expectations about the future among potential farmland buyers. It is optimal for each seller to have a reservation price in excess of the value he attaches to the future stream of income attributable to owning the land if he thinks that some potential buyers may be more optimistic than he. A formula for the optimal reservation price is presented, and a numerical illustration is shown. An extremely preliminary empirical test using Corn Belt and Lake State data is made of the importance of optimists in determining land prices for 1968–81.

Suggested Citation

  • Keith C. Brown & Deborah J. Brown, 1984. "Heterogenous Expectations and Farmland Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 66(2), pages 164-169.
    • Handle: RePEc:oup:ajagec:v:66:y:1984:i:2:p:164-169.
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    File URL: http://hdl.handle.net/10.2307/1241033
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    Cited by:

    1. Ahrendsen, Bruce L., 1993. "A Structural Approach to Estimating Rate of Return Expectations of Farmers," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 25(2), pages 56-68, December.
    2. Stam, Jerome M., 1995. "Credit as a Factor Influencing Farmland Values," Staff Reports 278779, United States Department of Agriculture, Economic Research Service.
    3. Plogmann, Jana & Mußhoff, Oliver & Odening, Martin & Ritter, Matthias, 2022. "Farmland sales under returns and price uncertainty," Economic Modelling, Elsevier, vol. 117(C).
    4. Fiechter, Chad M., 2023. "Farmland Value Expectations and Learning," 2023 Annual Meeting, July 23-25, Washington D.C. 335505, Agricultural and Applied Economics Association.
    5. Hardie, Ian & Parks, Peter, 1990. "Aggregation of Profit-Maximizing Land Use Decisions for the Analysis of New Land Use Policies," Working Papers 197742, University of Maryland, Department of Agricultural and Resource Economics.
    6. Foster, John H., 1985. "Interregional Competitive Impact Of Urban Influenced Farmland Prices," Northeastern Journal of Agricultural and Resource Economics, Northeastern Agricultural and Resource Economics Association, vol. 14(2), pages 1-6, October.
    7. Fiechter, Chad & Kuethe, Todd, 2021. "Agricultural Lenders and Farmland Appraisers Disagreement on Farmland Value Expectations," 2021 Agricultural and Rural Finance Markets in Transition (Virtual Meeting), October 6-7, 2021 316031, Regional Research Committee NC-1177 (formerly NC-1014): Agricultural and Rural Finance Markets in Transition.
    8. Patrick de Fontnouvelle & Sergio H. Lence, 2002. "Transaction Costs and the Present Value “Puzzle” of Farmland Prices," Southern Economic Journal, John Wiley & Sons, vol. 68(3), pages 549-565, January.
    9. Yifei Wu & Jeffrey H. Dorfman & Brady E. Brewer, 2021. "The susceptibility of farmland loans to default under falling farmland and commodity prices," Agricultural Economics, International Association of Agricultural Economists, vol. 52(4), pages 561-574, July.
    10. B. James Deaton & Chad Lawley, 2022. "A survey of literature examining farmland prices: A Canadian focus," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 70(2), pages 95-121, June.
    11. Gabruch, Mandy L. & Micheels, Eric T., 2017. "2016 WAEA Winning Student Submission: The Effect of Saskatchewan's Ownership Restrictions on Farmland Values," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 42(1), pages 1-13, January.
    12. Lowenberg-DeBoer, James M., 1985. "The impact of farmland price changes on farm size, financial structure enterprise choice," ISU General Staff Papers 198501010800009722, Iowa State University, Department of Economics.

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