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

Published in

Working Paper Series / Swedish University of Agricultural Sciences, Department of Economics
2016, number: 2016:04
Publisher: Department of Economics, Swedish University of Agricultural Sciences

Authors' information