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Residential Development, Risk, and Land Prices

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Abstract:

This paper examines the relationship between the residential development sequence and land price. Inherent in the dynamics of residential development is that the first consumers face the greatest risk since they do not know with certainty what the neighborhood characteristics will be; subsequent consumers have more information. The model predicts that land prices will rise over time relative to the market; developers offer the first consumers discounted land prices to compensate them for the first-mover disadvantage. The empirical evidence indicates that this is indeed the case.

Document Type: Original Article

DOI: http://dx.doi.org/10.1111/0022-4146.00072

Affiliations: 1: Department of Finance, School of Business Administration, University of Connecticut, Storrs, CT 06269, U.S.A., 2: Department of Economics, College of Business Administration, Louisiana State University, Baton Rouge, LA 70803, U.S.A., 3: Department of Finance, School of Business Administration, University of Connecticut, Storrs, CT 06269, U.S.A.

Publication date: November 1, 1997

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