Agent-based modeling of a rental market for agricultural land in the Argentine Pampas

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 due to lack of capital or dissatisfaction with recent economic progress (a Minimum Progress Rate, MPR, is targeted), 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. Initial experiments with simplified economic contexts (input and output prices) did not show significant differences in regional land tenure from LARMA vs. use of an exogenous, fixed LRP. Nevertheless, simulated LRP trajectories reproduced observed dynamics: prices followed consistently the trajectories of conditions driving crop yields and profits. Consideration of MPR induced many land owners to rent out their farms, thus increasing the proportion of rented land. LARMA is a first attempt to translate equilibrium-based models into a model involving agent heterogeneity and social embeddedness. Many LARMA components will be used in a subsequent model with full bilateral transactions.