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Abstract

We present a dynamic stochastic programming model that reflects the typical bargaining situation concerning large land deals in Africa. The model allows assessing the effect of market- and country-specific risks and taxation. It shows that commodity price volatility increases the value of the land development option, but slows down the land development process. Furthermore, it shows that host country attempts to negotiate fixed commitments to the speed of project development may run counter to the structure of economic incentives at the project site. Finally, the applicability of the model is demonstrated for a recent 10,000-hectare cotton project in Ethiopia.

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