The economic consequences of regulatory taking risk on land value and development activity

In this paper the real options approach to land valuation is extended by: (i) showing how land value may be adversely effected when localities threaten a regulatory taking with less than full compensation, (ii) quantifying the resulting probability of development, which may increase in an attempt to thwart the taking of development rights; and (iii) measuring the value of lost income on an ex ante basis when an interim taking occurs. We find that the economic impact of such regulation can be substantial, which has implications for measuring just compensation claims as well as for general land use regulatory policy and related legal theory. (C) 1997 Academic Press