Implicit Prices of Soil Characteristics for Farmland in Iowa

Arguments have long persisted that purchasers pay too much for poor land (i.e., less productive, more erosive) relative to the higher quality counterpart. In other words, purchasers are either irrational or poorly informed relative to the differences in land productivity between poor and good farmland. Similar arguments have been advanced concerning the willingness-to-pay rent on the part of tenant operators. Little empirical evidence exists to support or reject this hypothesis. Farmland appraisals are sometimes cited as evidence to support the contention, but such empiricism may indicate more about the quality and biases of appraisers than about the behavior or efficient functioning of the farmland market. Resolution of this issue is extremely important to the formation of soil conservation policy designed to protect soil productivity. Irrational behavior on the part of land purchasers may lead one to infer that the market system is failing to recognize adequately the soil productivity consequences of soil erosion. If this oversight consistently leads to excessive soil erosion from society's perspective, then some form of government intervention may be necessary to protect the welfare of society, assuming that such intervention is capable of correcting the market failure.