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The Inconsistency of Land Values, Land Rents, and Capitalization Formulas
Author(s) -
Clark J. Stephen,
Fulton Murray,
Scott John T.
Publication year - 1993
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1242963
Subject(s) - capitalization , economic rent , economics , asset (computer security) , commodity , capital asset pricing model , consumption based capital asset pricing model , capital asset , capital (architecture) , microeconomics , risk aversion (psychology) , financial economics , government (linguistics) , econometrics , expected utility hypothesis , finance , geography , philosophy , linguistics , computer security , archaeology , computer science
This paper examines relationships that exist between farm income, land values, and capital asset pricing theory. Using two commonly referenced data sets, it is shown that land prices and land rents do not have the same time‐series representations, a necessary condition for the simple capital asset pricing theory to hold. This suggests that a fundamental rethinking of the way in which land prices are viewed and modeled is needed. More complex models that allow for rational bubbles, risk aversion, and future shifts in government policy or commodity prices may be required.