Escalation of real estate prices following reservior authorization has become a serious problem in development of water resources and preservation of environmental quality. Land markets and land development are examined in two authorized federal reservoir areas in North Carolina including the transactional history of 7,018 land parcels within three miles of the reservoirs from points in time five and six years prior to authorization to five and six years after authorization. Factors associated with variation in market activity and sales prices and their policy implications are evaluated. Alternative federal, state, and local policies are proposed to reduce land acquisition costs, limit speculation, and maintain environmental quality. (Modified author abstract)