Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/237755 
Year of Publication: 
2021
Series/Report no.: 
Tinbergen Institute Discussion Paper No. TI 2021-022/IV
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
Abstract: 
Urban structures and urban growth rates are highly persistent. This has far-reaching implications for the optimal size and timing of new construction. We prove that rational developers postpone construction not because prospects are gloomy, but because they are bright. The slow mean reversion in urban growth rates for the Netherlands and the United States (estimated at 0.07 per annum) implies that a substantial share of cities should optimally postpone construction due to high growth. Observed heterogeneity in floorspace density across cities can be explained not by differences in population levels, but in growth rates.
Subjects: 
irreversible investment
mean-reverting growth
real-estate construction
real options
urban growth
JEL: 
D81
G12
R14
R31
R51
Document Type: 
Working Paper

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