CAPITALIZED VALUES OF TOBACCO ALLOTMENTS AND RATE OF RETURN TO ALLOTMENT OWNERS

Tobacco allotments have been salable only along with the farms to which they are attached. Multiple regression allows one to isolate that part of total land value accounted for by allotments. Capitalized values of flue-cured tobacco allotments were estimated for the period 1934”62. The ratio of annual earnings to these capitalized values, or the rate of return, fell from about.75 in the years 1944”46, when the program was first really effective, to a level of.16 for the period 1957”62. This decline reflects a dramatic increase in investor confidence in the future of the tobacco program and places tobacco allotments, which are widely thought to be highly profitable as monopoly rights go, in a class of relatively riskless investments. Government programs that reduce the risk of farm ownership are bound to increase the value of the assets and thereby reduce the rate of return. The rate of return allows us to predict the fall in capitalized value that will accompany future changes in expected income. © 1969, Oxford University Press.