A Dynamic Stochastic Programming Framework for Modeling Large Scale Land Deals in Developing Countries
The attractiveness of agricultural land available in developing countries has markedly increased in the last few years. Driven by rising and highly volatile prices for agricul- tural commodities, large land acquisitions have been undertaken by foreign investors. We formalize the discussion surrounding such large scale land deals through a dynamic stochastic programming model. Within this framework, we first determine the value of a land development project under uncertainty about prices for agricultural commodi- ties, political risk and irreversible capital investment. Second, given an exogenously set corporate tax rate, we determine, in both a cooperative and a non-cooperative set- ting, the optimal land rental payment. We show that 1) the optimal policy scheme is equivalent to a risk-sharing contract, 2) trading o¤ rental payment with tax revenue is detrimental for both total project value and domestic benefits and 3) taxation has a neutral impact on long-run the land development pace. We complete our study by illustrating our results through an empirical application based on observed individual land deals from Ethiopia and simulations for a specific crop in a selected region that has recently been targeted by foreign investments.
|Date of creation:||01 Jun 2013|
|Date of revision:|
|Contact details of provider:|| Postal: 555 East Wells Street, Suite 1100, Milwaukee, Wisconsin 53202|
Phone: (414) 918-3190
Fax: (414) 276-3349
Web page: http://www.aaea.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ujjayant Chakravorty & Marie-Hélène Hubert & Linda Nøstbakken, 2009.
"Fuel Versus Food,"
Annual Review of Resource Economics,
Annual Reviews, vol. 1(1), pages 645-663, 09.
- Dixit, Avinash K, 1989.
"Entry and Exit Decisions under Uncertainty,"
Journal of Political Economy,
University of Chicago Press, vol. 97(3), pages 620-38, June.
- G. Cornelis van Kooten & Robert A. Schipper, 2002. "Forest Conservation in Costa Rica when Nonuse Benefits are Uncertain but Rising," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(1), pages 150-160.
- Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
- Pennings, Enrico, 2005. "How to maximize domestic benefits from foreign investments: the effect of irreversibility and uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 29(5), pages 873-889, May.
- Song, Feng & Zhao, Jinhua & Swinton, Scott M., 2009.
"Switching to Perennial Energy Crops under Uncertainty and Costly Reversibility,"
56195, Michigan State University, Department of Agricultural, Food, and Resource Economics.
- Feng Song & Jinhua Zhao & Scott M. Swinton, 2011. "Switching to Perennial Energy Crops Under Uncertainty and Costly Reversibility," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(3), pages 764-779.
- 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.
- Agliardi, Elettra, 2001. "Taxation and Investment Decisions: A Real Options Approach," Australian Economic Papers, Wiley Blackwell, vol. 40(1), pages 44-55, March.
- Schatzki, Todd, 2003. "Options, uncertainty and sunk costs:: an empirical analysis of land use change," Journal of Environmental Economics and Management, Elsevier, vol. 46(1), pages 86-105, July.
- Clark, Ephraim, 1997. "Valuing political risk," Journal of International Money and Finance, Elsevier, vol. 16(3), pages 477-490, June.
- Di Corato, Luca, 2013.
"Profit sharing under the threat of nationalization,"
Resource and Energy Economics,
Elsevier, vol. 35(3), pages 295-315.
- Di Corato, Luca, 2010. "Profit Sharing under the Threat of Nationalization," Working Papers 58292, Swedish University of Agricultural Sciences, Department of Economics.
- Luca Di Corato, 2010. "Profit Sharing under the Threat of Nationalization," Working Papers 2010.5, Fondazione Eni Enrico Mattei.
- Cox, John C. & Ross, Stephen A., 1976. "The valuation of options for alternative stochastic processes," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 145-166.
- Hartman, Richard & Hendrickson, Michael, 2002. "Optimal partially reversible investment," Journal of Economic Dynamics and Control, Elsevier, vol. 26(3), pages 483-508, March.
- Harrison, J. Michael & Kreps, David M., 1979. "Martingales and arbitrage in multiperiod securities markets," Journal of Economic Theory, Elsevier, vol. 20(3), pages 381-408, June.
When requesting a correction, please mention this item's handle: RePEc:ags:aaea13:150190. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)
If references are entirely missing, you can add them using this form.