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Abstract
Fifteen hundred farmland owner-operators in Illinois, Michigan, and Nebraska were surveyed to determine the influence of interpersonal relationships in farmland transactions. Results support the conclusion that relationships alter the terms and patterns of farmland sales. Minimum-sell prices to friends and family members were discounted by 5.57 percent and 6.78 percent, respectively, and a premium of 18.4 percent was added to the minimum-sell price to unfriendly neighbors. Finally, as a result of premiums and discounts that depend on relationships, less than two percent of land sales were to unfriendly neighbors while up to 70 percent of land sales were to friends and family. The results of this study suggest that farmland market studies should consider the importance of relationships.
Introduction
Farmland is the single most important asset in the farm sector's balance sheet, accounting for 60 to 80 percent of the farm sector's assets. Because of its importance, agricultural economists have repeatedly examined the farmland market to determine farm policies (Weersink et al.); the influence on the price of land of commodity prices; discounted cash flows (Lence and Miller); financial terms (Stam); taxes; inflation (Robison, Lins, and Venkataramam); speculative bubbles (Falk); and other factors (Falk and Lee). Common to each of these studies has been the assumption that farmland buyers and sellers act independent of each other's interests.
The social capital paradigm suggests an alternative assumption to the one most commonly employed in agricultural farmland market studies. Namely, that relationships between farmland buyers and sellers need not be "arm's length" nor symmetric (Robison, Myers, and Sites). The consideration of this alternative assumption immediately prompts an empirical question. If some relationships are sympathetic (antipathetic) rather than arm's length, do these influence the terms of trade and the selection of trading partners? In other words, are past farmland market studies that assumed arm's length relationships justified?
To answer the empirical question posed above, the authors of this report, scientists at three universities, cooperated in a survey of farmland owners and operators in Illinois, Michigan, and Nebraska. Our objective was to find out if relationships of sympathy and trust, social capital, influenced the terms and likelihood of farmland trades. In what follows, the farmland survey is described, characteristics of survey respondents reported, and survey results...