Endogenizing the Reservation Value in Models of Land Development Over Time and Under Uncertainty
AbstractThe notion of a reservation value is a key feature of most contemporary dynamic and stochastic models of land development. It is clear that the magnitude of the reservation value has a fundamental bearing on the decision to develop or preserve land. This notwithstanding, many papers that analyze land development in a dynamic and stochastic setting treat a landowner’s reservation value as an exogenous variable. Therefore, the purpose of this paper is to endogenize the reservation value in the context of a model of land development over time and under uncertainty. Our analysis shows that the optimal reservation value is the solution to a specific maximization problem. In addition, we also show that there exist theoretical circumstances in which the optimal reservation value is unique.
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Bibliographic InfoPaper provided by Utah State University, Department of Economics in its series Working Papers with number 2004-18.
Date of creation: Nov 2004
Date of revision:
dynamics; endogenous reservation value; land development; uncertainty;
Other versions of this item:
- Amit Batabyal & Basudeb Biswas, 2005. "Endogenizing the Reservation Value in Models of Land Development Over Time and Under Uncertainty," ERSA conference papers ersa05p163, European Regional Science Association.
- Batabyal, Amitrajeet A., 2004. "Endogenizing The Reservation Value In Models Of Land Development Over Time And Under Uncertainty," Economics Research Institute, ERI Series 28340, Utah State University, Economics Department.
- R19 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Other
- Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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