Title

Essays in brownfield redevelopment

Date of Completion

January 2004

Keywords

Economics, General|Environmental Sciences

Degree

Ph.D.

Abstract

Brownfield redevelopment is a topic of interest to a varied audience for reasons such as urban sprawl, health concerns, depressed property values, and strategic location of new businesses. This dissertation provides insight into the potential barriers for redevelopment, and informs decision makers on the implications of brownfield policies. ^ The first essay evaluates firm and bank behavior in the context of brownfield redevelopment under the threat of liability driven bankruptcy. Using a simple model of the loanable funds market, one can determine how firms make brownfield and greenfield development choices, as well as assess how government policy affects firm and bank actions. The threat of bankruptcy can lead to an adverse selection problem where brownfield redevelopment occurs independent of government assistance. Under this scenario, a government subsidy to brownfield developers leads to more brownfield development, but also results in a higher brownfield interest rate. As a result the banking sector captures some of the subsidy aimed for brownfield developers. ^ The second essay analyzes the capitalization of liability costs into the price of brownfields through a dual Nash Bargaining problem between developers and sellers in the greenfield and brownfield markets. In the absence of bankruptcy, liability costs are fully capitalized into the brownfield price. Under bankruptcy, bargaining outcomes are different. Because some high ability firms remain solvent, information plays an important role in the bargaining process. The price outcome and developer choice differs depending on the level of information the seller has regarding the developer's ability. ^ The third essay empirically tests whether brownfield redevelopment positively impacts surrounding property values. Using transaction level data for properties in Connecticut, one can construct a hedonic price model to determine the impact of brownfields on surrounding properties before redevelopment, as well as measure the impact of brownfield proximity after redevelopment. Brownfields exert a negative effect on surrounding properties prior to redevelopment, but do not necessarily have a positive or neutral effect post development. Cleaning up and redeveloping a brownfield does not always have a positive effect on housing values because the new property use may also have a negative externality attached to it. ^