Uncertainty, real option and land expropriation decision

The real options theory is used to research the land expropriation decision. The paper establishes a real options model to value the land expropriation project by introducing of two variables of prices and costs. The optimal investing time and the optimal land expropriation scale are provided to discuss the effects of uncertainty. The results show that: rising the uncertainties of prices and costs accelerate the optimal investment time and increase the size of the optimal land expropriation, the government decides to delay land expropriation and expand the scale of land expropriation when the uncertainties are increasing. Using a numerical example, the conclusions are that the land expropriation decisions are influenced more significantly by land prices than by development costs.