No abstract

Subject to legal limitations, the owner of undeveloped real estate can determine both the date and density at which to develop his property. Alternatively, he can abandon his property. The value of these options depends partly on the stochastic evolution through time of the operating revenues and construction costs of developed property. In this paper the option pricing problem is solved analytically and numerically for the optimal data and density of development, the optimal date of abandonment, and the resulting market values of the developed and undeveloped properties.The option to develop real estate differs in several important ways from put and call options that investors can trade on organized exchanges. Subject to legal limitations, the owner of real estate can select the scale or density at which to develop his property. Also, if the costs of carrying an undeveloped property exceed sufficiently its operating revenues, then the owner has an incentive to abandon his property. Both options affect the market value of the undeveloped property. In addition, the value of the undeveloped property depends upon not only the operating revenues from the developed property but also its costs of development, both of which can evolve stochastically over time. ~ Compared to problems with financial options, the owner's options are more complex and are driven by a different set of stochastic state variables.In other ways developing real estate is much like exercising an option. Subject to local zoning regulations, the owner chooses the date at which to develop his property. This option is more valuable the more uncertain are changes over time in either operating revenues or construction costs. If investors can trade substitute securities continuously without transaction costs in a perfectly competitive capital market, then the owner optimally develops his property only when development maximizes its market value. For example, maximizing market value is optimal if the capital market is perfectly competitive and complete, even if the market for real estate is not. Also, since the option to develop never expires, the owner optimally exercises his option only when his property's developed value, as determined by its operating cash inflows, exceeds its costs of development. Depending upon the values of various parameters, the difference at the optimal exercise point between the developed value and the construction costs can be considerable. Finally, development is essentially irrevocable, much like the exercise of financial options. Because buildings are durable, properties are redeveloped only after prior improvements are rendered economically or technically obsolete by the passage of time.

A signalling equilibrium with taxable dividends is identified. In this equilibrium, corporate insiders with more valuable private information optimally distribute larger dividends and receive higher prices for their stock whenever the demand for cash by both their firm and its current stockholders exceeds its internal supply of cash. In equilibrium, many firms distribute dividends and simultaneously issue new stock, while other firms pay no dividends. Because dividends reveal all private information not conveyed by corporate audits, current stockholders capture in equilibrium all economic rents net of dissipative signalling costs. Both the announcement effect and the relationship between dividends and cum‐dividend market values are derived explicitly.

Humans with lesions to the orbital͞medial prefrontal cortex and interconnected areas display impulsive aggressive behavior. To examine further the relationship between impulsive aggression and orbital͞medial prefrontal dysfunction, we measured the behavioral performance of psychiatric patients with a disorder characterized by impulsive aggression, Intermittent Explosive Disorder (IED). Presently, no evidence exists for a localized brain lesion in IED subjects. However, on the basis of the location of brain lesions that produce acquired impulsive aggression, we hypothesized that IED subjects would exhibit test performance similar to patients with lesions to the orbital͞medial prefrontal cortex. Subjects with IED and controls were administered three tests sensitive to lesions of the orbital͞medial prefrontal circuit: the Iowa Gambling Task, facial emotion recognition, and odor identification, and two control tests of working memory. On the gambling task, IED subjects continued to make disadvantageous decisions throughout the 100 trials, whereas controls learned to avoid disadvantageous decisions. On the facial recognition test, IED subjects were impaired at recognizing ''anger,'' ''disgust,'' and ''surprise,'' and they were biased to label neutral faces with ''disgust'' and ''fear.'' On odor identification, IED subjects were mildly anosmic and were impaired relative to controls. However, on the working memory control tests, both groups performed similarly. Across tests, the performance of IED subjects resembles the performance of patients with orbital͞medial prefrontal lesions in previous studies. These results extend the link between dysfunction of the orbital͞medial prefrontal circuit and impulsive aggressive behavior.