ENDOGENIZING THE RESERVATION VALUE IN MODELS OF LAND DEVELOPMENT OVER TIME AND UNDER UNCERTAINTY
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 landowners 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.
Year of publication: |
2004
|
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Authors: | Batabyal, Amitrajeet A. |
Institutions: | Department of Applied Economics, Utah State University |
Keywords: | Land Economics/Use |
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