Campus Units

Economics

Document Type

Article

Publication Version

Accepted Manuscript

Publication Date

2014

Journal or Book Title

Applied Economic Perspectives and Policy

Volume

36

Issue

4

First Page or Article ID Number

577

Last Page

603

DOI

10.1093/aepp/ppu027

Abstract

The historical behavior of farmland prices, rental rates, and rates of return are examined by treating farmland as an asset with an infinitely long life. It is found that high (low) farmland prices relative to rents have historically preceded extended periods of low (high) net rates of return, rather than greater (smaller) growth in rents. Our analysis shows that this attribute is shared with stocks and housing, and the financial literature provides ample evidence that other assets feature it as well. The long-run relationship linking farmland prices, rents, and rates of return is analyzed. Based on this relationship, we conclude that recent trends are unlikely to be sustainable. The study explores the expected paths that farmland prices and rates of return might follow if they were to eventually conform to the average values observed in the historical sample, and concludes with a discussion of the policy implications. Recommendations for policy makers include close monitoring of farmland lending practices and institutions to allow early identification of potential problems, and identifying in advance appropriate interventions in case recent farmland market trends were to suddenly change.

Comments

This is a pre-copyedited, author-produced PDF of an article accepted for publication in Applied Economic Perspectives and Policy following peer review. The version of record is available online at: http://dx.doi.org/10.1093/aepp/ppu027

Copyright Owner

The Authors

Language

en

File Format

application/pdf