A Financial-Economic von Thünen Model

Abstract

The von Thünen model of agricultural land use is reformulated in this paper as an investment decision in which the objectives of farmers range from total risk-aversion to profit-maximization. By means of a variant of the mean-variance model of contemporary portfolio theory, it is demonstrated that individual bid-rent functions depend on the nature of a farmer's utility function. Because farmers' objectives affect their bid-rent functions, the spatial pattern of agricultural production is also affected. The conventional result of the von Thünen model is shown to be a special case of the more general portfolio model.