2023/07/01 by Tomohiro Hirano, Hirano, Tomohiro, Alexis Akira Toda +1 · 2 citations
Economics, Econometrics and Finance · #Economic Growth and Productivity #Economic theories and models #FOS: Economics and business #Theoretical Economics (econ.TH)
paper · pdf · doi:10.48550/arxiv.2307.00349
openalex publication_date 2023/07/01 · openalex created_date 2023/07/05 · openalex updated_date 2026/07/28
Historical trends suggest the decline in importance of land as a production factor but its continued importance as a store of value. Using an overlapping generations model with land and aggregate uncertainty, we theoretically study the long-run behavior of land prices and identify economic conditions under which land becomes overvalued on the long-run trend relative to the fundamentals defined by the present value of land rents. Unbalanced growth together with the elasticity of substitution between production factors plays a critical role. Around the trend, land prices exhibit recurrent stochastic fluctuations, with expansions and contractions in the size of land overvaluation.