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

Studies in Regional Science, Vol. 34, No. 3, pp. 219-224, 2003

Posted: 28 Apr 2005

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

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Abstract

The concept of a reservation value is a key feature of most contemporary dynamic and probabilistic 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 articles 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 particular 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. Studies in Regional Science, Vol. 34, No. 3, pp. 219-224, 2003, Available at SSRN: https://ssrn.com/abstract=708561

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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