ABANDONED BUILDINGS - A STOCHASTIC-ANALYSIS

Many buildings have been boarded up, forfeited, or demolished to make way for vacant lots in large United States Cities. Why? And why do these "abandoned" properties retain positive prices in the market? These phenomena, I argue, can be understood only in the context of uncertainty. The paper develops a model of building life cycles under uncertainty. In such a model it can, in certain states, be efficient to shut buildings down or demolish them without rebuilding. Because private owners have a forfeiture alternative, however, actual life cycles are likely to be marked by too little rebuilding, too little maintenance, and, possibly, too many demolitions. Abandonment raises a host of public policy questions. The most unavoidable are those about how cities should handle, maintain, and dispose of forfeited property that becomes theirs. Optimal code enforcement also becomes an interesting topic. These are all second-best problems. © 1993 Academic Press. All rights reserved.