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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Date of creation: Aug 2005
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- Amitrajeet Batabyal & Basudeb Biswas, 2004. "Endogenizing the Reservation Value in Models of Land Development Over Time and Under Uncertainty," Working Papers, Utah State University, Department of Economics 2004-18, Utah State University, Department of Economics.
- Batabyal, Amitrajeet A., 2004. "Endogenizing The Reservation Value In Models Of Land Development Over Time And Under Uncertainty," Economics Research Institute, ERI Series, Utah State University, Economics Department 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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