Land Quality and Prices

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Abstract
Although land values reflect land quality, the quality characteristics that determine values are only partly related to agricultural uses. The results of estimating a reduced‐form equation explaining differences in land prices among states suggest that nearly two‐thirds of this variation is attributed to nonagricultural uses. Therefore, a land quality index based on raw land prices will be biased, which in turn will result in biased coefficients in a production function or its dual. A cross‐section land quality index which excludes the influence of nonagricultural uses is constructed.

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