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Transaction Costs and the Present Value Model of Farmland: Iowa, 1900-1994

  • Lence, Sergio H.
  • Miller, Douglas

The present study investigates whether the farmland "constant-discount-rate present-value-model (CDR-PVM) puzzle" is due to transaction costs. The theoretical implications of transaction costs for the CDR-PVM of farmland are discussed, and two bootstrap tests of such implications are introduced and applied to Iowa farmland prices and rents. Empirical results regarding the validity of the CDR-PVM in the presence of typical transaction costs are ambiguous. Econometric tests indicate that the CDR-PVM is consistent with typical transaction costs assuming a one-period holding horizon, but not when an infinite-holding horizon is hypothesized.

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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 1535.

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Date of creation: 01 May 1999
Date of revision:
Publication status: Published in American Journal of Agricultural Economics, May 1999, vol. 81 no. 2, pp. 257-272
Handle: RePEc:isu:genres:1535
Contact details of provider: Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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