Land Management

see also: land progression

Nic Tideman: Land Taxation and Efficient Land Speculation

To see how land speculation can lead to a waste of resources, it is useful to develop a somewhat formal model of land management and land speculation. Abstract from the continuous divisibility of land and suppose that land comes in "sites." At each moment in time, each site is in one of three states:

1. Suitable for agriculture.

2. Suitable for housing.

3. Suitable for commercial activity.

While each site can be used for any activity, the net return will be greatest if it is used for the activity for which it is suited, provided that it remains in that activity long enough to fully amortize the associated capital that is state-specific, durable and immobile. What could keep a site from remaining in an activity long enough to amortize the associated capital is that from time to time a site makes a transition from state 1 to state 2 or from state 2 to state 3. These transitions are imperfectly predictable. When a transition from state 2 to state 3 occurs unexpectedly, the course of action that maximizes the net return to the site may entail scrapping prematurely the residential structure built there and building a commercial structure. In such an instance, one may be able to look backward and say that it would have been better not to have built the residential structure at all, but rather to have left the site in agricultural use until the transition to state 3 occurred. However, such reckoning can affect investment decisions only to the extent that transitions can be foreseen. ... read the whole article