Friday, January 6, 2012

Update on the Devon rents paper

I haven't posted anything for about six months---so here is an update of the Devon rents paper. Here we have the data on 488 parishes in the southwest of England for the year 1836. We are trying to test the following five hypotheses:

H1: farmers were integrated into the national economy, even before the railways reduced transport costs
H2: agricultural rents were set  at levels predictable by agricultural location theory
H3: farmers considered weather risks when negotiating rent
H4: some landowners reduced rents in exchange for votes from their tenants
H5: the practice in the county of Devon of leasing agricultural land by auction increased rents in that county, other factors (such as land quality) being equal

I have finally managed to get a working regression, of arable rent against grain yield, elevation, distance to London and pasture rent for adjoining land. The coefficient of determination (r-squared) is a tad over 0.7, which is not at all bad (although of course I'd like it higher). I then used geographically-weighted regression to discover any regional differences in the regression coefficients. The result is below.

The colours represent different levels of r-squared, with red (in the green rectangle) being the highest. This means that for some reason the rents in the red parishes were set more closely in accordance with what agricultural location theory would predict. Why is this? Possible answers are:

1. There is a misspecification in the model, perhaps I've omitted a variable or two
2. John Knight bought 15,000 acres of Exmoor Forest in 1819, and that corresponds very closely to the green rectangle. Because he was a newcomer, the rents may have been set at more realistic levels
3. Agricultural leases in Devon were set by auction, in contrast to elsewhere. In this case we would expect the level of rent to reflect market conditions more closely than rents set arbitrarily.
4. More---I am working on this....but weather risk is an interesting possibility.

Just to keep you up to date. We are nearly there!

1 comment:

Malcolm V L said...

It's interesting that surrounding the Northern Devon high R^2 value are low R^2 values, which makes me think that something unique economically was going on there. My thoughts from a logical perspective are that A) the region was a fortress of solitude against changes to the traditional economic models.
B) the region adapted much quicker to new modifications to the economy, possibly due to transportation elements.