Chapter Four - Optimal land use regulation in a growing city

Abstract

In a city with low population growth, a one-time decision on land use regulation to mitigate population density externalities (e.g., congestion, noise) may work over a long period. However, many cities, particularly those in developing countries, have a high population growth rate. In such cities, the population distribution and thereby the severity of population externalities at a location can change significantly over time. Therefore, to be effective, land use regulation also needs to change dynamically and concomitantly with population growth. In Chapter 2, we have explored a static closed-city model divided into two fixed-area zones, high-externality zone and low-externality zone, based on the severity of negative population density externality in each zone. Applying the model to obtain optimal floor area ratio (FAR) regulations, we have found that a maximum FAR regulation should be imposed in the high-externality zone along with a minimum FAR regulation in the low-externality zone. In this chapter, we extend the static model to take account of a growing population whereby the level of externalities would also change over time such that a present-day low-externality zone could end up becoming a high-externality zone in the course of time. Specifically, following Joshi and Kono (2009), we determine the socially optimal path of FAR regulation in the presence of negative population externalities that change dynamically with population growth. Like in Chapter 2, the model city is restricted against spatial expansion. But the model developed in this chapter has buildings constructed and replaced over time.