The Impact of Information on Land Development : A Dynamic and Stochastic Analysis

In simple, two period models of the development of land, K. Arrow and A. Fisher, and C. Henry have shown that when the decision to develop is (i) irreversible, and (ii) indivisible, a land developer who disregards the possibility of acquiring new information about the result of land development will certainly underestimate the benefits of preserving land. Consequently, this individual will favor development. In this paper, I extend aspects of this literature. In particular, in a dynamic and stochastic setting, I ask and answer the question regarding when development should take place, given that the development decision is being made in an intertemporal setting