Keywords
agricultural land markets, agricultural production, land tenure, argentina
Start Date
1-7-2010 12:00 AM
Abstract
More than half of land in the Argentine Pampas is cropped by tenants. Theimportance of production on rented land motivated development of a LAnd Rental MArket(LARMA) model with endogenous formation of Land Rental Price (LRP). LARMA is a“hybrid” model that relies partly on easy-to-implement concepts from neoclassicaleconomics, but addresses drawbacks of this approach by being integrated into an agentbasedmodel that involves heterogeneous agents interacting in a dynamic environment.LRP formation assumes economic equilibrium: it is the price at which supply of rental landarea equals land demand. LRP depends on (a) the “willing to accept” price (WTAP) ofowners renting out land due to lack of capital or dissatisfaction with recent economicprogress (a Minimum Progress Rate, MPR, is targeted), and (b) the “willing to pay” price(WTPP) and working capital (WC) of potential tenants. Land owners base WTAP onestimated profits they could achieve from operating their farms. Potential tenants baseWTPP on their target gross margin for the upcoming cycle. Initial experiments withsimplified economic contexts (input and output prices) did not show significant differencesin regional land tenure from LARMA vs. use of an exogenous, fixed LRP. Nevertheless,simulated LRP trajectories reproduced observed dynamics: prices followed consistently thetrajectories of conditions driving crop yields and profits. Consideration of MPR inducedmany land owners to rent out their farms, thus increasing the proportion of rented land.LARMA is a first attempt to translate equilibrium-based models into a model involvingagent heterogeneity and social embeddedness. Many LARMA components will be used ina subsequent model with full bilateral transactions.
Agent-based Modeling of a Rental Market for Agricultural Land in the Argentine Pampas
More than half of land in the Argentine Pampas is cropped by tenants. Theimportance of production on rented land motivated development of a LAnd Rental MArket(LARMA) model with endogenous formation of Land Rental Price (LRP). LARMA is a“hybrid” model that relies partly on easy-to-implement concepts from neoclassicaleconomics, but addresses drawbacks of this approach by being integrated into an agentbasedmodel that involves heterogeneous agents interacting in a dynamic environment.LRP formation assumes economic equilibrium: it is the price at which supply of rental landarea equals land demand. LRP depends on (a) the “willing to accept” price (WTAP) ofowners renting out land due to lack of capital or dissatisfaction with recent economicprogress (a Minimum Progress Rate, MPR, is targeted), and (b) the “willing to pay” price(WTPP) and working capital (WC) of potential tenants. Land owners base WTAP onestimated profits they could achieve from operating their farms. Potential tenants baseWTPP on their target gross margin for the upcoming cycle. Initial experiments withsimplified economic contexts (input and output prices) did not show significant differencesin regional land tenure from LARMA vs. use of an exogenous, fixed LRP. Nevertheless,simulated LRP trajectories reproduced observed dynamics: prices followed consistently thetrajectories of conditions driving crop yields and profits. Consideration of MPR inducedmany land owners to rent out their farms, thus increasing the proportion of rented land.LARMA is a first attempt to translate equilibrium-based models into a model involvingagent heterogeneity and social embeddedness. Many LARMA components will be used ina subsequent model with full bilateral transactions.
