DEVELOPMENT EFFORT IN SPECULATIVE REAL-ESTATE COMPETITIONS

I model speculative development races when the time at which the devel opment effort becomes profitable is uncertain. I first treat the decis ion of a speculator who has exclusive rights to the development prize. I then show that development races intensify development effort compa red with the collectively optimal level of effort. Development races w ith identical speculative developers reduce aggregate profits and brin g forward development time, whether or not joint development externali ties are present. In such races, land use policies that restrict the n umber of permitted developers can enhance collective returns. (C) 1997 Academic Press.