Deborah J. Brown

Heterogenous Expectations and Farmland Prices

This paper examines the effect of heterogenous expectations about the future among potential farmland buyers. It is optimal for each seller to have a reservation price in excess of the value he attaches to the future stream of income attributable to owning the land if he thinks that some potential buyers may be more optimistic than he. A formula for the optimal reservation price is presented, and a numerical illustration is shown. An extremely preliminary empirical test using Corn Belt and Lake State data is made of the importance of optimists in determining land prices for 1968–81.

Crop substitution in the estimation of economic benefits due to ozone reduction

Prior estimates of economic loss from ozone damage to food crops have not allowed for farmer substitution in inputs—and particularly have not allowed for acreage shifts between crops—in response to yield changes. This is a potentially serious problem since benefits from air pollution control legislation may also be estimated without allowing for this direct substitution. This study explores how much acreage shifting might occur between corn, soybeans, and wheat if ozone were reduced to background levels, and how such substitution might affect the estimation of benefits from ozone reduction.

Sources of Cyclical Employment Instability in Rural Counties

Cyclical employment instability at the county level is examined using monthly Indiana employment data for 1970–80 and a single-index portfolio model. Results show rural counties are more responsive to systematic or cyclical employment instability than urban counties. At the state level, a high percentage employed in manufacturing has been associated with greater employment instability over the business cycle. This relationship does not hold at the county level where most manufacturing sectors seem to cyclically stabilize the counties in which they appear.

Heterogenous Expectations and Farmland Prices: Reply

Lin and Pasour (LP) object first to the theoretical interpretation and then to the empirical specification of our farmland model. Their major objection to the theory appears to be to the role we assign pessimists. Their major objection to the empirical work is to the use of nominal, where they would prefer real, values. We will show that both objections are in error. It is necessary first to review our model briefly.