A game theory approach to the analysis of land and property development processes

Abstract

Land and property development processes obviously can be seen as a social situation in which the interaction of individuals or groups of individuals is one of the essential elements. To study and understand social situations, it is important to analyse how the decisions of actors are interrelated and how those decisions result in outcomes. In this paper, we propose a game theoretical modelling approach to analyse it. Hence, the objective of the paper is to investigate the usefulness as well as the limitations of game theoretical modelling for analysing and predicting the behaviour of actors in decision-making processes with respect to the development of land and property. For that purpose, we have developed game models for the case study of the development of a greenfield residential location in the Netherlands with respect to the implementation of new Dutch legislation on cost recovery. Our study demonstrates that game theory could help us to identify the key strategic decisions of land and property development projects by showing the different payoffs for stakeholders of their chosen strategies and selecting the equilibrium in which all stakeholders involved are best of. We also found many limitations of using game theory in our case study especially regarding the assumptions underlying the model. However, we conclude that game theoretical modelling can be a useful decision support tool in spatial planning, because it provides a way to think about the complexity of strategic interaction and, in particular, about the conflicting structure of collective decision-making processes.