Land development timing: Effects of uncertainty in income and tax policy

Abstract

This paper investigates several sources of uncertainty and their effects on the optimal timing of land development. The method of Meyer and Ormiston (1983, 1985) for strong increases in risk and their comparative statics, is applied. There are three basic results. First, a strong increase in risk in the pre-development income stream speeds the development process, regardless of whether the random effect is incorporated in an additive or multiplicative form in the model. Second, strong increases in risk in pre-development property tax rates delay development. Finally, a strong increase in risk in the post-development income stream results in a slower development process.