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On the price effect of a right-of-first-refusal in farmland auctions

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  • Isenhardt, Lars
  • Seifert, Stefan
  • Huettel, Silke

Abstract

Current European Union legislation offers public authorities to grant a right of first refusal (RFR) in farmland auctions with public tenders in favour of the current tenant. That is, tenants can purchase the auctioned lot by matching the highest bid. Granting this right secures tenants to buy the land they use; however, it may deter other potential buyers’ auction participation and incentivise bidders to adjust their strategies. A RFR for tenants is thus hypothesised to decrease the number of bidders and lower sales prices. Empirical evidence seems lacking thus far; in this paper, we target at closing this gap by analysing a tenants’ RFR effect on the number of bidders and winning bids in first-price privatization auctions in eastern Germany. Using around 4,000 land auction results in one German Federal State over 2007-2018 by two agencies that differ in granting the RFR to tenants, we combine non-parametric nearest neighbour matching based on the Mahalanobis distance with parametric post-matching regressions. Our results indicate that the RFR reduces competition by an average 8.3% bidders per auction and lowers the prices paid in land auctions by 16.7 %.

Suggested Citation

  • Isenhardt, Lars & Seifert, Stefan & Huettel, Silke, 2021. "On the price effect of a right-of-first-refusal in farmland auctions," 95th Annual Conference, March 29-30, 2021, Warwick, UK (Hybrid) 312053, Agricultural Economics Society - AES.
    • Handle: RePEc:ags:aesc21:312053
    DOI: 10.22004/ag.econ.312053
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