Evaluating the Risk of Urban Redevelopment Viewed as a Social Decision Process

Abstract Under the scheme of Japanese City Renewal Law (JCRL), the cost of urban redevelopment project has been financed by the revenue from selling the reservation floor secured beforehand in the redeveloped building. Since the outcome of whether or not the reservation floor can be sold is unforeseeable, entities for redevelopment are faced with the risk for project financing. Traditional risk evaluation has just focused on the risk inherent in the project that is carried out by a single entity and whose future returns are uncertain. On the contrary, this paper focuses on the risk of urban redevelopment project in which plural decision-makers are involved and whose future outcome becomes uncertain since it depends on the decisions made by other decision-makers involved. Defining the risk for the entities as the probability that the entities suffer a loss and formalizing the urban redevelopment procedure as a two-stage auction game, this paper has demonstrated that we can evaluate the actual amount of risk the entities are going to bear in the project by showing a hypothetical numerical example.