Endogenizing the Reservation Value in Models of Land Development Over Time and Under Uncertainty

13 Pages Posted: 10 Nov 2004

See all articles by Amitrajeet A. Batabyal

Amitrajeet A. Batabyal

Rochester Institute of Technology (RIT) - Department of Economics

Basudeb Biswas

Utah State University - College of Business - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 2004

Abstract

The 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.

Keywords: Dynamics, Endogenous Reservation Value, Land Development, Uncertainty

JEL Classification: R19, Q24, D81

Suggested Citation

Batabyal, Amitrajeet A. and Biswas, Basudeb, Endogenizing the Reservation Value in Models of Land Development Over Time and Under Uncertainty (November 2004). Available at SSRN: https://ssrn.com/abstract=615842 or http://dx.doi.org/10.2139/ssrn.615842

Amitrajeet A. Batabyal (Contact Author)

Rochester Institute of Technology (RIT) - Department of Economics ( email )

92 Lomb Memorial Drive
Rochester, NY 14623-5604
United States
585-475-2805 (Phone)
585-475-5777 (Fax)

HOME PAGE: http://people.rit.edu/aabgsh

Basudeb Biswas

Utah State University - College of Business - Department of Economics ( email )

3530 Old Main Hill
Logan, UT 84322-3530
United States

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