Endogenizing the Reservation Value in Models of Land Development Over Time and Under Uncertainty

Amitrajeet Batabyal and Basudeb Biswas ()

No 2004-18, Working Papers from Utah State University, Department of Economics

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: dynamics; endogenous reservation value; land development; uncertainty (search for similar items in EconPapers)
JEL-codes: D81 Q24 R19 (search for similar items in EconPapers)
Date: 2004-11
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https://repec.bus.usu.edu/RePEc/usu/pdf/ERI2004-18.pdf First version, 2004 (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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