Price Dispersion in Farmland Markets: What Is the Role of Asymmetric Information?JEL codes

This article investigates the role played by information, search, and bargaining cost in agricultural land markets to explain price dispersion. Based on a hedonic model under incomplete information, we build a two-tier stochastic frontier. By linking costs of being information deficient to agent characteristics such as degree of professionalism, we identify relative price effects of buyer and seller types related to information deficiency. We compile a comprehensive data set of more than 10,000 transactions in Saxony-Anhalt, Germany, between 2014 and 2017. We find institutional sellers to achieve the lowest losses resulting from information deficiency and sell with mark-ups, whereas other sellers incur losses. This seller group could benefit from investments in professionalism and roughly halve their cost of being information deficient. Tenant buyers can benefit from informational advantages resulting in markdowns with lowest effects in the harvest season. We conclude that Germany's policy makers can do more to support market transparency.