Scandinavian Working Papers in Economics
Working Paper Series,
Swedish University of Agricultural Sciences, Department Economics
No 2016:8: Rural land development under hyperbolic discounting: a real option approach
Luca Di Corato ()
Additional contact information
Luca Di Corato: Department of Economics, Swedish University of Agricultural Sciences, Postal: Department of Economics, Box 7013, Swedish University of Agricultural Sciences, SE-750 07 Uppsala, Sweden
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 naïve 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
22 pages, August 29, 2016
Full text files
dicorato_l_160915.pdf
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