Time Invariant Decision Rules and Land Development: A Dynamic and Stochastic Analysis

Abstract:     
The Arrow-Fisher-Henry (AFH) analysis of land development under uncertainty has been conducted in a 2 period setting. In recent times, Capozza and Helsley (1990), Batabyal (1996, 1997, 2000), and other researchers have studied the issue of land development under uncertainty in a many time periods setting. We generalize parts of this literature by studying the role that bid values play in the decision to develop land in an intertemporal and probabilistic setting. We first describe a simple decision rule for a landowner who seeks to procure, at the very least, a minimal level of revenue from the development of land. Next, we calculate the average value of the bid that leads to land development when this decision rule is followed by our landowner.

Keywords: Bid, Dynamics, Land Development, Reservation Price, Uncertainty

JEL Classification: Q24, R19, D81

Accepted Paper Series