The theoretical and empirical relationship between farm‐based residual returns, the opportunity cost of farmland, and farmland prices is developed. Temporal hypotheses concerning the source of land price movements are tested using a variant of Granger causality. In the aggregate, farmland prices are found to be unidirectionally “caused” by residual farm‐based returns. The findings support the hypothesis that farmland prices are determined mainly within the farm sector and lend credence to the use of extrapolative expectations processes in structural farmland price models.
No takes yet. Share an insight, caveat, or question.
Tim T. Phipps (1984) studied this question.