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@swaldman
Last active July 29, 2019 20:29
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‪a quick take‬ ‪(in one sitting, tapping into a smart phone. of course it’s probably wrong.)‬

‪let’s set aside risk, for simplicity. the land is an input to a business, say growing apples. ‬each period you invest in working capital and get less back in sales than you spent, but maybe more than you would have got from a bank. that is the new definition of “profitability”. under risk neutrality, the value of the land is either 0 (if the negative return on working K is the same as the bank rate, perfect competition), infinite (if it will be perpetually higher), or some finite value (if it will be temporarily higher). eventually, after temporary, it is either zero or infinite. but if it is infinite, either it contradicts the perpetual negative rate assumption (as finance availability is scarce relative to infinity, so people bid it to a finite rate), or else the value of the numeraire falls to zero (as infinite finance is made available).

let’s suppose the perfect competition version, so having land effectively provides no financial privilege relative to holding your working K as cash. then, while 0 is the eqm value treating land as a business asset, it still has idiosyncratic use value to its potential holders. in this case there is no predictable eqm value, but the price of various pieces of land would be determined by happenstance of agent preferences and wealth.

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