Inflation‐Indexed Price Supports and Land Values

A theoretical model is developed to examine and illustrate some relationships between cost‐indexed support prices and land values. The model is developed in the context of a single‐commodity, price‐uncertain world in which policy makers are allowed to control the percentage of nonland operating costs and the percentage of land costs covered by the support price. The model demonstrates that the time path of land values can be quite sensitive to policy parameters. Attempts by policy makers to guarantee a “fair” rate of return on land may have substantial impact on future land values.