Unbalanced Growth and Land Overvaluation
Theoretical Economics
2025-07-11 v4
Abstract
Historical trends suggest the decline in importance of land as a production factor but its continued importance as a store of value. Using an overlapping generations model with land and aggregate uncertainty, we theoretically study the long-run behavior of land prices and identify economic conditions under which land becomes overvalued on the long-run trend relative to the fundamentals defined by the present value of land rents. Unbalanced growth together with the elasticity of substitution between production factors plays a critical role. Around the trend, land prices exhibit recurrent stochastic fluctuations, with expansions and contractions in the size of land overvaluation.
Keywords
Cite
@article{arxiv.2307.00349,
title = {Unbalanced Growth and Land Overvaluation},
author = {Tomohiro Hirano and Alexis Akira Toda},
journal= {arXiv preprint arXiv:2307.00349},
year = {2025}
}