Do Buyers’ Characteristics and Personal Relationships Affect Agricultural Land Prices? Philip Kostov ABSTRACT. The influence of buyer and personal relationship characteristics on agricultural land prices has received little attention in the literature. Recently, Perry and Robison (2001) used a restricted nonlinear specification to model the influence of personal relationships on the implicit prices of land characteristics. In this paper a more flexible alternative model is proposed. An approach to general model specification and model selection is presented. The results indicate that buyer character- istics and personal relationships exert nonuniform effects on the implicit prices of land characteristics. Our results support the hypothesis that social capital affects the terms of trade in the land market. (JEL C14) I. INTRODUCTION Social capital theory supports the notion that personal relationships between buyers and sellers may affect the price of agricul- tural land. Following Robison, Schmid, and Siles (2002), social capital can be defined as ‘‘a person’s or group’s sympathy or sense of obligation for another person or group.’’ It is argued that social capital may be treated in the same manner as the more conventional forms of capital, since social relationships may act as substitutes for physical inputs. When an individual is the object of another person’s sympathy, that individual gains social capital; this may mean receiving preferential treatment, since a sympathetic individual responds not only to his or her own incentives but also to the consequences of his or her actions on the other individual (Robison, Myers, and Siles 1999). The presence of social capital may therefore affect the terms of trade. The spatial fixity of agricultural land means that social capital is likely to be particularly important in the agricultural land market. The fact that agricultural land is fixed in terms of geographical space means that it cannot be moved from one location to another. Past cross-sectional studies of the agri- cultural land market have primarily focused on the relationship between land price and land characteristics, using the hedonic pricing technique, and have largely exclud- ed buyer and personal relationship charac- teristics. According to hedonic theory (Ro- sen 1974) the price of a heterogeneous good is a function of only those characteristics that describe the good itself. This automat- ically precludes the inclusion of the buyer or personal relationship characteristics within the hedonic regression equation. In the original hedonic framework the estimated coefficients of the hedonic function repre- sent the implicit prices of each of the hedonic land characteristics, which when multiplied by the quantity of each charac- teristic sum to yield the total price of a unit of agricultural land. However, given that the implicit prices of characteristics may depend on shifters of buyers’ utility func- tions, some studies now adopt a broader approach by entering buyers’ characteristics within the main hedonic function. Schmid and Robison (1995), Siles et al. (2000), and Robison, Myers, and Siles (2002) develop a convincing theoretical model illustrating how social capital can affect the terms of trade for agricultural land. Tsoodle, Gold- en, and Featherstone (2006) present an extensive overview of these underlying theoretical arguments, and we will not discuss them here. The author is senior lecturer, International Finance, Division of Accounting and Finance, Lancashire Business School, University of Central Lancashire. Land Economics N February 2010 N 86 (1): 48–65 ISSN 0023-7639; E-ISSN 1543-8325 E 2010 by the Board of Regents of the University of Wisconsin System