The Effects of Potential Land Development on Agricultural Land Prices

39 Pages Posted: 2 Apr 2002

See all articles by Andrew Plantinga

Andrew Plantinga

Oregon State University

Ruben N. Lubowski

Environmental Defense Fund

Robert N. Stavins

Harvard University - Harvard Kennedy School (HKS); Resources for the Future; National Bureau of Economic Research (NBER)

Date Written: June 2002

Abstract

We conduct a national-scale study of the determinants of agricultural land values to better understand how current farmland prices are influenced by the potential for future land development. The theoretical basis for the empirical analysis is a spatial city model with stochastic returns to future land development. From the theoretical model, we derive an expression for the current price of agricultural land in terms of annual returns to agricultural production, the price of recently developed land parcels, and expressions involving model parameters that are represented in the empirical model by nonlinear functions of observed variables and parameters to be estimated. We estimate the model of agricultural land values with a cross-section on approximately three thousand counties in the contiguous U.S. The results provide strong support for the model, and provide the first evidence that option values associated with irreversible and uncertain land development are capitalized into current farmland values. The empirical model is specified in a way that allows us to identify the contributions to land values of rents from near-term agricultural use and rents from potential development in the future. For each county in the contiguous U.S., we estimate the share of the current land value attributable to future development rents. These results give a clearer indication of the magnitude of land development pressures and yield insights into policies to preserve farmland and associated environmental benefits.

Suggested Citation

Plantinga, Andrew J. and Lubowski, Ruben N. and Stavins, Robert N., The Effects of Potential Land Development on Agricultural Land Prices (June 2002). Available at SSRN: https://ssrn.com/abstract=305498 or http://dx.doi.org/10.2139/ssrn.305498

Andrew J. Plantinga

Oregon State University ( email )

232B Ballard Extension Hall
Corvallis, OR 97331-4501
United States

Ruben N. Lubowski

Environmental Defense Fund ( email )

New York, Nat'l Headquarters
257 Park Avenue South
New York, NY 10010
United States

Robert N. Stavins (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-1820 (Phone)
617-496-3783 (Fax)

Resources for the Future

1616 P Street, NW
Washington, DC 20036
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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