Faculty Publications

The Value Of The Option To Preserve Farm Real Estate

Document Type

Article

Keywords

Contingent Claim, Derivative, Farmland, Preservation, Real Option, Valuation

Journal/Book/Conference Title

Journal of Economics and Finance

Volume

36

Issue

1

First Page

162

Last Page

175

Abstract

Agricultural conservation easements consist of deed restrictions that landowners voluntarily place on their farm real estate for any number of reasons including the permanent restriction of development. Purchase of Agricultural Conservation Easement (PACE) programs exist in many States and are used to ensure farm real estate is available for future agricultural use as well as a policy mechanism to control development. Much like the landowner's development option, preservation is a real option exercised at the discretion of the landowner. An analytic contingent claims model is presented to value the landowner's preservation option. An empirical analysis of the model indicates that the option to delay preservation can have significant value. © 2010 Springer Science+Business Media, LLC.

Department

Department of Finance

Original Publication Date

1-1-2012

DOI of published version

10.1007/s12197-010-9138-7

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