Exploring long-term land improvements under land tenure insecurity

This article explores long-term land improvements (lime and phosphorus application) under land tenure insecurity on leased land. The dynamic optimisation problem is solved by a stochastic dynamic programming routine with known parameters for one-period returns and transition equations. The model parameters represent Finnish soil quality and production conditions. The decision rules are solved for alternative likelihood scenarios over the continuation of the fixed term lease contract. The results suggest that as the probability for non-renewal of the lease contract increases, farmers quickly decrease investments in irreversible land improvements and, thereafter, yields decline gradually. The simulations highlight the observed trends of decreasing land improvements on land parcels that are cultivated under lease contracts.