Land prices, Empirical Evidence and Literature Review

The general theoretical framework for the capitalisation of agricultural support into the production factor land has been developed in Chapter 2. This chapter reviews the extensive empirical literature on this topic it summarizes what we know about the size of the impact of agricultural policies on land rentals and land prices. The empirical literature confirms that we know relatively well the impact of polices on land rentals, but we know less about the working of land markets and the formation of land transaction prices. The consensus emerging from the empirical literature is that government policies can indeed affect rentals through the capitalisation phenomenon. In addition, the land rent has a positive relation with the transaction price of land, but it is only one of its many possible explanatory factors.