Information Rigidities and Farmland Value Expectations

The rational expectation hypothesis posits that agents use all information efficiently in forming expectations. In farmland value expectations the hypothesis of efficient incorporation of information has been rejected. Traditionally, a rejection of rationality implies agents are irrational. However, models of information rigidity, like the Sticky and Noisy Information Models, suggest that a rational agent may face challenges in incorporating all information efficiently. We find evidence of information rigidities in the expectations of Iowa farmland values from 1964 - 2021. We also find that information rigidities do not fully explain rejections of rationality, and that the degree of information rigidity is heterogeneous for various geographic regions and during periods of high and low interest rate volatility.