The Impact of Production Intensity on Agricultural Land Prices

Abstract

This paper is one of the first attempts to utilize the theoretical framework of the new economic geography for explaining agricultural land prices. We adopt a model proposed by Pflüger and Tabuchi (2010), which allows to consider land as a production factor. We derive a short-run equilibrium that relates land rental prices to production intensity. The latter is measured as labor intensity, i.e., the ratio of labor cost and land used for agricultural production and additionally by livestock density. The model is applied to the agricultural sector in West Germany using county level price and cost data of the FADN. A spatial lag model clearly rejects the null hypothesis of no impact of labor and livestock intensity on land rental prices.