Indivisibilities and development timing the shopping-center problem

The subject of this paper is the timing and efficiency of development decisions in urban or regional markets for establishments like shopping centers, hotels, and commercial office buildings where indivisibilities are important. It presents a model of the land development process that incorporates indivisibilities. A non-optimality theorem is proved to confirm that market-controlled development timing is not optimal, and that sometimes the market undersupplies indivisible establishments once a terminal state is reached. Further, during the period of development the market may oversupply establishments for intervals of time. In contrast to static analysis, indivisibilities do not allow developers to earn positive profits. These are competed away by foresighted, sequential development timing.