This paper analyses the main institutional factors affecting the rental and sales markets for agricultural land. Particular attention is paid to the effects of the common agricultural policy on land markets, and more specifically the underlying mechanism through which agricultural subsidies are capitalised into land values and farmland rents. This paper also provides a broad overview of the empirical studies that estimate the impact of agricultural support policies on land rents and land prices. Various other fundamental factors that affect agricultural land markets are discussed, such as land market institutions and regulations, transaction costs, credit market constraints and levels of profitability, the legal means of contract enforcement and land use alternatives.
Pavel Ciaian and d’Artis Kancs are working at the European Commission (DG Joint Research Centre); Johan F.M. Swinnen is a Senior Research Fellow at CEPS and Director of the LICOS Centre for Institutions and Economic Performance at KU Leuven; Kristine Van Herck is a PhD Student at the LICOS Centre for Institutions and Economic Performance at KU Leuven; Liesbet Vranken is an Assistant Professor at the Department of Earth and Environmental Sciences, at KU Leuven.