Brownfield Development: Uncertainty, Asymmetric Information, and Risk Premia

Michael Trouw, Stephan Weiler and Jesse Silverstein
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Michael Trouw: Department of Economics, College of Liberal Arts, Colorado State University, Fort Collins, CO 80523, USA
Jesse Silverstein: Development Research Partners, Inc., Littleton, CO 80127, USA

Sustainability, 2020, vol. 12, issue 5, 1-18

Abstract: This paper shows that brownfield redevelopment occurs at a lower than socially optimal rate due to a stigma effect. A theoretical framework is employed, incorporating asymmetric information showing this stigma within the brownfields market generates a first-mover problem. Developers require a risk premium on their rate of return to offset this stigma, which discourages investment. Asymmetric information further widens the gap between offer and asking prices, reducing successful transactions. Implications of the theoretical framework are explored using a survey of real estate developers in the Denver metropolitan area. Brownfield developers’ typical characteristics along with their risk and stigma premiums are quantified and found to be substantially in excess of cleanup costs.

Keywords: brownfield; information asymmetry; risk; uncertainty; land use; real estate (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:12:y:2020:i:5:p:2046-:d:329477

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