Transaction Costs and the Present Value Model of Farmland: Iowa, 1900–1994

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.