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Brownfield Development: Uncertainty, Asymmetric Information, and Risk Premia

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  • Michael Trouw

    (Department of Economics, College of Liberal Arts, Colorado State University, Fort Collins, CO 80523, USA)

  • Stephan Weiler

    (Department of Economics, College of Liberal Arts, Colorado State University, Fort Collins, CO 80523, USA)

  • Jesse Silverstein

    (Development Research Partners, Inc., Littleton, CO 80127, USA)

Abstract

This paper shows that brownfield redevelopment occurs at a lower than socially optimal rate due to a stigma effect. A theoretical framework is employed, incorporating asymmetric information showing this stigma within the brownfields market generates a first-mover problem. Developers require a risk premium on their rate of return to offset this stigma, which discourages investment. Asymmetric information further widens the gap between offer and asking prices, reducing successful transactions. Implications of the theoretical framework are explored using a survey of real estate developers in the Denver metropolitan area. Brownfield developers’ typical characteristics along with their risk and stigma premiums are quantified and found to be substantially in excess of cleanup costs.

Suggested Citation

  • Michael Trouw & Stephan Weiler & Jesse Silverstein, 2020. "Brownfield Development: Uncertainty, Asymmetric Information, and Risk Premia," Sustainability, MDPI, vol. 12(5), pages 1-18, March.
    • Handle: RePEc:gam:jsusta:v:12:y:2020:i:5:p:2046-:d:329477
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    References listed on IDEAS

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    1. Kamila Turečková & Stanislav Martinát & Jan Nevima & František Varadzin, 2022. "The Impact of Brownfields on Residential Property Values in Post-Industrial Communities: A Study from the Eastern Part of the Czech Republic," Land, MDPI, vol. 11(6), pages 1-21, May.
    2. Elżbieta Radziszewska-Zielina & Dagmara Adamkiewicz & Bartłomiej Szewczyk & Olga Kania, 2022. "Decision-Making Support for Housing Projects in Post-Industrial Areas," Sustainability, MDPI, vol. 14(6), pages 1-26, March.

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