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Indivisibility And Divisibility In Land Development Decisions Over Time And Under Uncertainty

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Author Info
Batabyal, Amitrajeet A.
Yoo, Seung Jick

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Abstract

The quasi-option value (QOV) literature originated by Arrow and Fisher (1974) and by Henry (1974) is largely concerned with the analysis of two-period models of land development. Our paper extends this literature by analyzing two scenarios in which the decision to develop land is made in a multi-period and stochastic framework. In the first scenario, the development decision is indivisible. In contrast, in the second scenario, the development decision is divisible. Specifically, we study the properties of the indivisible development decision when there is a time constraint on when land is to be developed. We then analyze the ways in which the divisible land development decision depends on the extent of a landowner'’s landholding and on the number of development opportunities awaiting this landowner.

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Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2004 Annual meeting, August 1-4, Denver, CO with number 20278.

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Date of creation: 2004
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Handle: RePEc:ags:aaea04:20278

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Keywords: Land Economics/Use;

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  1. R. Glenn Hubbard, 1994. "Investment under Uncertainty: Keeping One's Options Open," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1816-1831, December. [Downloadable!] (restricted)
  2. Batabyal, Amitrajeet A., 1995. "The Impact of Information on Land Development: A Dynamic and Stochastic Analysis," Working Papers 9513, Utah State University, Department of Economics.
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  3. Arnott, Richard J & Lewis, Frank D, 1979. "The Transition of Land to Urban Use," Journal of Political Economy, University of Chicago Press, vol. 87(1), pages 161-69, February. [Downloadable!] (restricted)
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  4. Amitrajeet A. Batabyal, 2000. "An optimal stopping approach to land development under uncertainty," The Annals of Regional Science, Springer, vol. 34(1), pages 147-156. [Downloadable!] (restricted)
  5. Markusen, James R. & Scheffman, David T., 1978. "The timing of residential land development: A general equilibrium approach," Journal of Urban Economics, Elsevier, vol. 5(4), pages 411-424, October. [Downloadable!] (restricted)
  6. Pindyck, Robert, 1989. "Irreversibility, uncertainty, and investment," Policy Research Working Paper Series 294, The World Bank. [Downloadable!]
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  7. Batabyal, Amitrajeet A., 1999. "On some aspects of land development when the decision to develop is divisible," Resources Policy, Elsevier, vol. 25(3), pages 173-177, September. [Downloadable!] (restricted)
  8. Epstein, Larry G, 1980. "Decision Making and the Temporal Resolution of Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(2), pages 269-83, June. [Downloadable!] (restricted)
  9. Hanemann, W. Michael, 1989. "Information and the concept of option value," Journal of Environmental Economics and Management, Elsevier, vol. 16(1), pages 23-37, January. [Downloadable!] (restricted)
  10. Capozza, Dennis R. & Helsley, Robert W., 1989. "The fundamentals of land prices and urban growth," Journal of Urban Economics, Elsevier, vol. 26(3), pages 295-306, November. [Downloadable!] (restricted)
  11. Capozza, Dennis R. & Helsley, Robert W., 1990. "The stochastic city," Journal of Urban Economics, Elsevier, vol. 28(2), pages 187-203, September. [Downloadable!] (restricted)
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