Maintenance decisions of absentee landlords under uncertainty

Why are some areas of a city characterized by blight and decay, while others, of the same vintage, remain healthy, vibrant, and appealing? The answer is in part determined by the maintenance land property abandonment) decisions of absentee landlords. Given the great practical importance of this topic. it has not been neglected in the literature. However, because of the dynamic nature of the problem, most of the authors have used optimal control theory, which requires that all prices, future and present, be known with certainty. The innovation in this paper is to treat future rents as being uncertain. The primary model discussed in the paper is stylistic in that time is discrete, and there are only two periods and two maintenance states (although the Appendixes contain models which relax these restrictions). The model is easy to understand and illustrates that the landlord's maintenance decision is affected by his expectations regarding future neighborhood quality and that these expectations may be influenced by the actions of other landlords or by public authorities. A simulation is presented which demonstrates the spatial nature of the deterioration of the housing, stock. (C) 1998 Academic Press.