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Department Economics, Swedish University of Agricultural Sciences Working Paper Series, Department Economics, Swedish University of Agricultural Sciences

No 2016:8:
Rural land development under hyperbolic discounting: a real option approach

Luca Di Corato ()

Abstract: This article presents a simple model of land development under uncertainty and hyperbolic discounting. Land kept in rural use pays an uncertain rent, while net returns from land development are known and constant. The landowner is viewed here as a sequence of infinite autonomous selves with time inconsistent preferences. We solve the underlying noncooperative intra-personal stopping time game under both na´ve and sophisticated beliefs about the landowner's time-inconsistency and show that i) land development is accelerated due to his present-biased time preferences and ii) a higher acceleration is associated with sophistication.

Keywords: Land Development; Stochastic Hyperbolic Discounting; Timing Game; Real Options; (follow links to similar papers)

JEL-Codes: C61; Q15; R11; (follow links to similar papers)

22 pages, August 29, 2016

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