Author: | Riddiough, T. |
Title: | Debt and development |
Journal: | Journal of Urban Economics
1997 : NOV, VOL. 42:3, p. 313-338 |
Index terms: | URBAN AREAS DEVELOPMENT DEBT |
Language: | eng |
Abstract: | This paper examines incentive and valuation effects of debt financing on land investment. When land is debt financed, the landowner holds both a development option on the land and a default option on the debt. Because development typically devalues the default option, investment may be delayed past the point at which efficient investment would otherwise proceed. The incentive to underinvest is shown to be more pronounced as debt level increases, i. e. as it becomes riskier. |
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