Abstract
Under ‘tenure review', a New Zealand pastoral lessee surrenders part of his leasehold to conservation and acquires a freehold interest in the remainder. Since 1992, 28 new freeholders paid the Crown $6.9 million for freehold rights to 101,752 ha, then sold 46% of that land for $135.7 million. We model tenure review as a sequential real option – first to acquire freehold, then to sell all or part of the new freehold. We find little evidence that the Crown accounted for the latter option value when negotiating tenure review, and conclude that the capital gains enjoyed by former lessees are rents.
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