Residential Development,Risk, and Land Prices

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