Agent-based Modeling of Land Rental Market: Comparison between Simulated and Observed Prices in The Argentine Pampas

Federico Bert, Guillermo Podestá, Santiago Rovere, Michael North, Angel Menéndez, Carlos Laciana, Charles Macal, Elke Weber and Pamela Sydelko

More than half of land in the Argentine Pampas is cropped by tenants. The importance of production on rented land motivated development of a LAnd Rental MArket (LARMA) model with endogenous formation of Land Rental Price (LRP). LARMA is a “hybrid” model that relies partly on easy-to implement concepts from neoclassical economics, but addresses drawbacks of this approach by being integrated into an agent-based model that involves heterogeneous agents interacting in a dynamic environment. LRP formation assumes economic equilibrium: it is the price at which supply of rental land area equals land demand. LRP depends on (a) the “willing to accept” price (WTAP) of owners renting out land, and (b) the “willing to pay” price (WTPP) and working capital (WC) of potential tenants. Land owners base WTAP on estimated profits they could achieve from operating their farms. Potential tenants base WTPP on their target gross margin for the upcoming cycle. Simulated LRP trajectories reproduced observed dynamics of prices in the Pampas. Simulated prices were mainly driven by farmers´ profits expectations at the beginning of each cropping cycle and crop yields and profits in recent previous cycles. LARMA is a first attempt to translate equilibrium-based models into a model involving agent heterogeneity and social embeddedness. Many LARMA components may be used in a subsequent model with full bilateral transactions.

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