The Impact of Information on Land Development: a Dynamic and Stochastic Analysis

In a two period model of land development, Arrow and Fisher, and Henry have shown that when development is both indivisible and irreversible, a developer who ignores the possibility of obtaining new information about the outcome of such development will invariably underestimate the benefits of preservation and hence favor development. This paper extends aspects of this literature by (i) studying the development question in a dynamic and stochastic framework, and (ii) explicitly incorporating an information production function into the analysis. In such a setting, I ask and answer the question concerning when development should take place.