Working Paper Series, Department Economics, Swedish University of Agricultural Sciences
Luca Di Corato
Passive farming and land development: a real option approach
() and Mark Brady
Abstract: We examine the impact that subsidies paid to passive
farmers have on the lease of land and on the speed of land development.
First, we find that, even if delaying land development, paying passive
farmers increases the value of the land. Second, when bargaining for the
lease of land, we show that the agreement between the parties is
conditional on an underlying development project passing a threshold level
in terms of profitability. Third, we identify the conditions leading to a
Pareto improvement. Last, we illustrate our findings by considering the
establishment of an energy crop on leased land.
Keywords: Real Options; Land development; Passive Farming; Nash Bargaining; (follow links to similar papers)
JEL-Codes: C61; Q15; R14; (follow links to similar papers)
32 pages, April 15, 2016
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