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Rural land development under hyperbolic discounting: a real option approach

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  • Di Corato, Luca

    () (Department of Economics, Swedish University of Agricultural Sciences)

Abstract

This article presents a simple model of land development under uncertainty and hyperbolic discounting. Land kept in rural use pays an uncertain rent, while net returns from land development are known and constant. The landowner is viewed here as a sequence of infinite autonomous selves with time inconsistent preferences. We solve the underlying noncooperative intra-personal stopping time game under both naïve and sophisticated beliefs about the landowner's time-inconsistency and show that i) land development is accelerated due to his present-biased time preferences and ii) a higher acceleration is associated with sophistication.

Suggested Citation

  • Di Corato, Luca, 2016. "Rural land development under hyperbolic discounting: a real option approach," Working Paper Series 2016:8, Swedish University of Agricultural Sciences, Department Economics.
  • Handle: RePEc:hhs:slueko:2016_008
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    References listed on IDEAS

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    More about this item

    Keywords

    Land Development; Stochastic Hyperbolic Discounting; Timing Game; Real Options;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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