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Econometric Modeling of the Capitalization Formula for Farmland Prices

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  • Oscar R. Burt

Abstract

An econometric model is formulated to explain the dynamic behavior in farmland prices. A second-order rational distributed lag on net crop-share rents received by landlords captures the dynamic movements of prices and performs well in conditional post-sample forecasts. The adjustment path of land prices in response to a perturbation in rents is a protracted dampened cycle. The implicitly estimated tax-free capitalization rate on rent associated with equilibrium land price is 4.0%. Neither the expected rate of inflation nor an exponential trend on rent expectations has a significant effect on land prices.

Suggested Citation

  • Oscar R. Burt, 1986. "Econometric Modeling of the Capitalization Formula for Farmland Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(1), pages 10-26.
    • Handle: RePEc:oup:ajagec:v:68:y:1986:i:1:p:10-26.
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    File URL: http://hdl.handle.net/10.2307/1241645
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