Chapter Five - Optimal land use regulations in a city with business areas

Abstract

This chapter explores how multiple land use regulations should be simultaneously imposed across a city in the presence of agglomeration economies and traffic congestion following Kono and Joshi (2018). In particular, we consider a monocentric city with three distinct land use zones—consisting of business, condominiums, and detached houses in that order—which closely resemble land use observed in real-world cities. The city has agglomeration economies in the business zone and traffic congestion across the city. Applying optimal control theory to the continuous city with the three distinct zones, we obtain optimal density regulation that changes continuously in each distinct zone. The rigorous derivation is shown in technical appendix, but the sketch of the derivation process is demonstrated in the main text. We separately treat FAR regulation and lot size (LS) regulation because building-size regulation such as FAR regulation necessarily generates deadweight loss caused by the regulation itself (see Chapter 2), whereas LS regulation has no deadweight losses (see Wheaton, 1998). Under FAR regulation, households can choose their optimal floor size within the regulated buildings. That is, FAR regulation controls population density indirectly, whereas LS regulation does this directly. In addition, we design optimal regulations on multiple zonal boundaries between the business zone, condominium zone, and detached housing zone.