The purpose of this paper is to investigate how households' cost for searching out farmland affects the rate of abandoned land or rent in farmland markets.
In farmland transactions, households need to engage in a matching process to match idiosyncratic tastes concerning farmland such as location, farming technique, and soil conditions. This is analogous to the labor market. In the labor market, there exists frictional unemployment because of the transaction cost in the matching process. From these points, there exists a transaction cost in the farmland market and it is not appropriate to understand this market in a perfect competition framework.
In this paper, we construct a farmland rental market model in which households can move into and out of the market to search for a unit to rent. It focuses on search cost explicitly and the circular model presented by Salop is adopted to develop this model.
The main conclusions of this paper are summarized as follows. (1) In the short run, search cost and rents may move in the same direction for one case, but the rate of abandoned land has not changed. (2) In the long run, search cost, rents and the rate of abandoned land may also move in same direction. Thus, this paper indicates that the abandonment of farmland not only causes unfavorable farming conditions mainly in hilly and mountainous area, but also the presence of the externality in farmland transactions.
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