RESIDENTIAL DEVELOPMENT, RISK, AND LAND PRICES

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