The Valuation of Agricultural Land and the Influence of Government Payments
The Valuation of Agricultural Land and the Influence of Government Payments

Author(s): Klaus Salhofer, Paul Feichtinger
Subject(s): Politics / Political Sciences, Politics, Economy, Agriculture, Political Theory, Government/Political systems, Political economy, Financial Markets
Published by: CEPS Centre for European Policy Studies
Keywords: Agricultural land; Influence of Government payments; land prices; land type; agri-environmental payments;
Summary/Abstract: This study gives an overview of the theoretical foundations, empirical procedures and derived results of the literature identifying determinants of land prices. Special attention is given to the effects of different government support policies on land prices. Since almost all empirical studies on the determination of land prices refer either to the net present value method or the hedonic pricing approach as a theoretical basis, a short review of these models is provided. While the two approaches have different theoretical bases, their empirical implementation converges. Empirical studies use abroad range of variables to explain land values and we systematise those into six categories. In order to investigate the influence of different measures of government support on land prices, a metaregression analysis is carried out. Our results reveal a significantly higher rate of capitalisation for decoupled direct payments and a significantly lower rate of capitalisation for agri-environmental payments, as compared to the rest of government support. Furthermore, the results show that taking theoretically consistent land rents (returns to land) and including non-agricultural variables like urban pressure in the regression implies lower elasticities of capitalisation. In addition, we find a significant influence of the land type, the data type and estimation techniques on the capitalisation rate.

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