Indivisibility and Divisibility in Land Development Over Time and Under Uncertainty
17 Pages Posted: 3 Feb 2005
Date Written: January 2005
The quasi-option value (QOV) literature originated by Arrow and Fisher (1974) and by Henry (1974) is largely concerned with the analysis of two-period models of land development. Our paper extends this literature by analyzing two scenarios in which the decision to develop land is made in a multi-period and stochastic framework. In the first scenario, the development decision is indivisible. In contrast, in the second scenario, the development decision is divisible. Specifically, we study the properties of the indivisible development decision when there is a time constraint on when land is to be developed. We then analyze the ways in which the divisible land development decision depends on the extent of a landowner's landholding and on the number of development opportunities awaiting this landowner.
Keywords: Divisible, dynamic, indivisible, land development, time constraint, uncertainty
JEL Classification: Q24, R14
Suggested Citation: Suggested Citation