On the effectiveness of restricted tendering as a form of policy intervention on agricultural land markets

The ongoing sharp rise in farmland prices in Europe has led to a discussion concerning the need for political intervention and stronger market regulation on agricultural land markets. In this context, restricted tendering for the privatization of agricultural land in post-communist countries is discussed and used as one form of political intervention. Only certain groups of bidders may participate in such tendering procedures in order to give them greater opportunities and to counteract effects such as land grabbing or structural change. Against this background this paper aims to answer the question, whether restricted tendering procedures allow structurally disadvantaged groups of bidders to buy at lower prices as is intended by the assessed policy intervention. A rich data set of over 12,000 first-price-sealed-bit auctions of agricultural land between 2005 and 2019 from Eastern Germany is analyzed using an auction theory individual private value framework and Propensity Score Matching. Results show that restricted tendering on agricultural land markets does not fulfill its intended purpose. Although the policy?s intermediate aim of considerably reducing the number of bidders is achieved, the ultimate goal of lower purchase prices is missed. On the contrary, the findings indicate that restricted tendering actually leads to higher purchase prices for comparable farmland plots.

Automated summary

The sharp rise in farmland prices in Europe has sparked a discussion about the need for political intervention and stronger market regulation. The use of restricted tendering in agricultural land markets does not achieve its intended purpose, but instead leads to higher purchase prices.