Optimal statute of limitations under land development timing decisions

In a recording title system, a landowner faces two risks: the risk of a claim from a previously dispossessed owner and risk of being dispossessed by adverse possession, squatting, or encroachment. In this study, we build a real options model to investigate the issues regarding the optimal statute of limitations. In the absence of any uncertainty, a longer statute of limitations delays land development, and thus a regulator may allow for a more lenient policy of statutory limitations for land located in the suburb than in the city center. At any given location, greater uncertainty in urban rents will cause a landowner to wait longer. Anticipating this outcome, the regulator should shorten the statute of limitations to increase the likelihood for the current owner to retain title.