Farm Land Prices and Farm Technological Advance

Farm land prices are analyzed in both a theoretical and an empirical framework. The theoretical analysis describes how the representative firm reacts to the expectation of increased income in the context of technological advance and farm price supports by bidding up land prices. The empirical analysis builds on the theoretical formulation and assumes that farm land prices are determined by the interaction of the supply of and demand for land. The major forces influencing supply are nonfarm employment opportunities and return on nonland investment. Demand is influenced by changes in expected income from farm land, which in turn are influenced by prices, urbanization, and farm technological advance. The role of technological advance in raising income expectations is stressed, with the conclusion that technological advance benefits, not the farm operator or farm manager, but the farm land owner.