Insights on the effect of land use choice: The perpetual option on the best of two underlying assets

We consider the effect of land use choice on speculative land value and on development timing as reflected in the optimal ''hurdle ratio'' which triggers immediate development. We find that land use choice (i.e., multiple-use zoning) may add over 40% to land value under typical economic circumstances. The conditions for optimal development of the land become markedly more difficult to achieve (higher hurdle ratio required) when the two land uses have similar values. Indeed, a ''rational indecision'' result obtains in theory; development will never occur when the two land use choices have equal value. (C) 1996 Academic Press, Inc.