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Transaction Costs and the Present Value “Puzzle” of Farmland Prices

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  • de Fontnouvelle, Patrick
  • Lence, Sergio H

Abstract

The present study introduces a theoretical land pricing model that allows for proportional transaction costs, and a corresponding kernel regression test. The model is tested with farmland returns data for 20 individual states, and also with two aggregate U.S. level series. The constant discount rate (CDR) present value model (PVM) of farmland prices is strongly rejected. However, it is found that the behavior of land prices and rents is consistent with the CDR-PVM in the presence of empirically observed values of transaction costs. Findings are very robust in that they apply to both individual state-level data and the U.S. aggregate-level series.

Suggested Citation

  • de Fontnouvelle, Patrick & Lence, Sergio H, 2002. "Transaction Costs and the Present Value “Puzzle” of Farmland Prices," ISU General Staff Papers 200201010800001038, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:200201010800001038
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