Social Capital and the Terms of Trade for Farmland

Social capital is a person or group's sympathy for or sense of obligation to another person or group. This article introduces social capital into a neoclassical model of farmland exchange and shows how relationships alter the terms of trade. Empirical evidence from a survey of farmers shows that the type of relationship farmland sellers have with farmland buyers has a statistically significant and economically important effect on the minimum‐sell price for farmland. Compared to the minimum‐sell price when selling to a total stranger in an arm's‐length transaction, farmland sellers discount prices to friendly neighbors and relatives and require a premium from unfriendly neighbors and influential people in the community.