Rural land development under hyperbolic discounting: a real option approach

Luca Di Corato ()

Letters in Spatial and Resource Sciences, 2018, vol. 11, issue 2, No 6, 167-182

Abstract: Abstract This article presents a simple model of land development under uncertainty and hyperbolic discounting. Land kept in rural use pays an uncertain rent, while net returns from land development are known and constant. The landowner is viewed here as a sequence of selves with time-inconsistent preferences. We solve the underlying timing game under both naïve and sophisticated beliefs about the landowner’s time-inconsistency and show that (i) land development is accelerated due to his present-bias and (ii) a higher acceleration is associated with sophistication.

Keywords: Land development; Stochastic hyperbolic discounting; Timing game; Real options (search for similar items in EconPapers)
JEL-codes: C61 Q15 R11 (search for similar items in EconPapers)
Date: 2018
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Working Paper: Rural land development under hyperbolic discounting: a real option approach (2016)
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DOI: 10.1007/s12076-018-0209-2

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