Assessing the Relative Merits of Development Charges and Transferable Development Rights in an Uncertain World

Abstract

Traditionally, regulatory instruments have been used to achieve planning objectives. However, emerging market-based policy instruments, such as transferable development rights, a quantity-based approach, and development charges, a price-based approach, are now being implemented in some jurisdictions. Despite this, there has been no comparison in this context of the relative effectiveness, or potential differences in outcomes, that these different market-based instruments can achieve when the benefits and costs of development are uncertain. This paper shows that, in the presence of uncertainty, significantly different outcomes in terms of overall welfare and the social distribution of costs and benefits of development can result, depending on which instrument is chosen. Therefore, careful analysis of instrument choice is required to improve overall efficiency.