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Real Options Valuation of Abandoned Farmland

Author

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  • Michi Nishihara

    (Graduate School of Economics, Osaka University)

Abstract

I investigate the decision-making process of an owner of abandoned farmland that is currently restricted to agricultural use but will be available for nonagricultural use in the future. I find that a slight probability of land conversion greatly increases the land value and discourages the owner from cultivating the land. I also observe that a small gap in the anticipation of land conversion prevents the owner from selling or leasing the land to a more efficient farmer.

Suggested Citation

  • Michi Nishihara, 2011. "Real Options Valuation of Abandoned Farmland," Discussion Papers in Economics and Business 11-09, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:1109
    as

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    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/1109.pdf
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    References listed on IDEAS

    as
    1. Capozza, Dennis & Li, Yuming, 1994. "The Intensity and Timing of Investment: The Case of Land," American Economic Review, American Economic Association, vol. 84(4), pages 889-904, September.
    2. Capozza, Dennis R. & Helsley, Robert W., 1990. "The stochastic city," Journal of Urban Economics, Elsevier, vol. 28(2), pages 187-203, September.
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    More about this item

    Keywords

    real option; abandoned farmland; land development; land conversion.;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns

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