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Transaction Costs and the Present Value Model of Farmland: Iowa, 1900–1994
Author(s) -
Lence Sergio H.,
Miller Douglas J.
Publication year - 1999
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 - 10.2307/1244580
Subject(s) - transaction cost , economic rent , time horizon , econometrics , database transaction , value (mathematics) , economics , horizon , constant (computer programming) , holding cost , microeconomics , transaction data , computer science , operations management , statistics , mathematics , finance , database , geometry , programming language
The present study investigates whether the farmland “constant‐discount‐rate present‐value‐model (CDR‐PVM) puzzle” is due to transaction costs. The theoretical implications of transaction costs for the CDR‐PVM of farmland are discussed, and two bootstrap tests of such implications are introduced and applied to Iowa farmland prices and rents. Empirical results regarding the validity of the CDR‐PVM in the presence of typical transaction costs are ambiguous. Econometric tests indicate that the CDR‐PVM is consistent with typical transaction costs assuming a one‐period holding horizon, but not when an infinite‐holding horizon is hypothesized.