An optimal stopping approach to land development under uncertainty

Abstract.

The Arrow-Fisher-Henry (AFH) analysis of land development under uncertainty has been conducted in a two period model. Recently, Capozza and Helsley (1990) and Batabyal (1996, 1997) have addressed the question of land development under uncertainty in a multi-period setting. We extend aspects of this literature by analyzing the multi-period land development question in an optimal stopping framework. In particular, we characterize the optimal decision rule governing the development of land, given that the objective of a landowner is to maximize the total revenue from development.