ENDOGENIZING THE RESERVATION VALUE IN MODELS OF LAND DEVELOPMENT OVER TIME AND UNDER UNCERTAINTY

Amitrajeet Batabyal

No 28340, Economics Research Institute, ERI Series from Utah State University, Economics Department

Abstract: 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 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 specific maximization problem. In addition, we also show that there exist theoretical circumstances in which the optimal reservation value is unique.

Keywords: Land; Economics/Use (search for similar items in EconPapers)
Pages: 14
Date: 2004
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https://ageconsearch.umn.edu/record/28340/files/er040018.pdf (application/pdf)

Related works:
Working Paper: Endogenizing the Reservation Value in Models of Land Development Over Time and Under Uncertainty (2005)
Working Paper: Endogenizing the Reservation Value in Models of Land Development Over Time and Under Uncertainty (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:usuese:28340

DOI: 10.22004/ag.econ.28340

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