Journal Article

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

Sergio H. Lence and Douglas J. Miller

in American Journal of Agricultural Economics

Published on behalf of Agricultural and Applied Economics Association

Volume 81, issue 2, pages 257-272
Published in print May 1999 | ISSN: 0002-9092
Published online May 1999 | e-ISSN: 1467-8276 | DOI: http://dx.doi.org/10.2307/1244580
Transaction Costs and the Present Value Model of Farmland: Iowa, 1900–1994

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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.

Keywords: bootstrapping; farmland prices; land transfer; present value model; transaction costs; Q120; Q150

Journal Article.  0 words. 

Subjects: Agricultural Economics

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