Land Use Regulation and the Environment

1
Land Use Regulation and the Environment

• Dave Sunding
• UC Berkeley

2
Land Use Regulation and the Environment U.S.
Perspective

• Land use is regulated at local level.
• Environmental protection provided by both local
  and central governments
• Permitting
• Acquisition
• Begin with conceptual considerations

3
Public Goods

• Basic characteristics of public goods
• Nonrivalry in consumption (one persons
  consumption does not impinge on anothers
  consumption)
• Nonexcludability (infeasible or too costly to
  exclude some individuals from consumption)

4
Impure Public Goods

• Public goods can have a limited scope
• A city park may be a public good for people in
  that city, but will anyone else want to use it?
• Public goods can also be congestable
• Public goods with a physical location are often
  congestable.
• Supplying these goods efficiently requires a lot
  of information about how they are used.

5
Spillovers

• Clean water and air are public goods that do not
  correspond to political boundaries.
• Pollution spills over from one jurisdiction to
  the next.
• Traffic is another example.
• Spillovers create an incentive for one government
  to free-ride on abatement in other locations.

6
Providing Public Goods Conventional Wisdom

• Basic principle Jurisdiction of a government
  should coincide with impacts of public goods it
  supplies.
• Public goods affecting neighborhoods should be
  provided by cities.
• Pure public goods should be provided by the
  central government.
• Congestable public goods should be provided by
  local governments with superior information.
• Spillovers should be handled by central
  governments or by special districts.

7
Splicing and Factoring When Should Governments
Merge?

• Small number of governments with broad
  jurisdiction--splicing.
• Large number with narrow jurisdiction--factoring.

8

• Observations
• 1. Splicing increases likelihood of inconsistent
  decisions.
• Dissimilar people
• More dimensions
• 2. Splicing increases the scope for bargaining.
• Lowers TC

9
Government Competition

• Forms
• 1. People can move from one jurisdiction to
  another. (Vote with your feet.)
• 2. Agencies compete for authority.
• 3. Private sector can compete with government
  agencies.
• Is competition helpful or destructive?

10
Mobility

• Individual citizens have different preferences
  for public goods, different income levels.
• Efficiency requires clustering together people
  with similar preferences.
• Clustering implies policies closer to citizens
  ideal points.

11
Mobility and Competition

• Make analogy to competitive markets - does
  perfect competition among cities (perfect
  mobility) lead to efficiency in the provision of
  public goods?
• Does many jurisdictions perfect competition?
• Tiebout explored this idea

12
Tiebout Hypothesis

• Location equilibrium is efficient.
• Equilibrium is such that nobody wishes they lived
  somewhere else, given their characteristics.
• Implication Mobility (free choice) leads to
  efficient local government.

13

• Wide local latitude promotes diversity among
  communities. Narrow local latitude promotes
  diversity within communities.
• What determines motives of local government?
  Citizens buy into a community. Some economists
  argue that goal of local government is to
  maximize land values in the community.

14
Exclusion

• Sorting is not just influenced by taste--also by
  income.
• Because local public goods are still public
  goods, citizens cannot be excluded.
• Thus, a poor person who moves to a rich persons
  neighborhood gets the rich persons level of
  public goods.
• Type of free riding

15

• Local governments rely on zoning rules to keep
  poor people out.
• Examples lot size, building height, types of
  businesses.
• Courts have intervened to prevent this.

16
Zoning for the Environment

• Suppose two firms laundry and power plant.
• If plant is close to laundry, this increases the
  laundrys production costs.
• Convex vs. Nonconvex Production Sets.
• Suppose power plant is far from laundry--then
  production set is convex.

17
Laundry
L0
E0
Electricity
Convex
18
If power plant is too close to laundry,
production set is nonconvex.
Laundry
L0
E0
Electricity
Nonconvex
19

• There is an externality from power plant
  operations.
• Zoning can create value by controlling
  externalities.

20
Laundry
10 miles
6 miles
3 miles
Electricity
21

• Zoning can be justified as a way to correct for
  market failures--in this case, the failure of the
  power plant owners to recognize their impact on
  the laundry.
• In reality, zoning boards respond to other
  pressures as well.
• Ability to grant a variance has high stakes,
  especially to the landowner involved.

22

• There has been much empirical work on zoning.
• Most economists believe that zoning boards
  attempt to maximize the value of property,
  especially the property of the people who elected
  them.

23

• Zoning and other regulation to protect local
  public goods can be effective.
• Public goods with wider scope probably require
  central government intervention.
• Examples from the U.S.
• Wetlands
• Endangered species