Externalities in Urban Property Markets: An Empirical Test of the Zoning Ordinance of Pittsburgh

Abstract

ONE of the most controversial issues in both the popular press and the economic, legal, political science, and sociology journals is the role of the government in our nation's primarily free-enterprise economy. Substantial interaction occurs between the political process and the economic system at all levels of government: federal, state, and local. Yet, paradoxically, the majority of the scholarly inquiry directed toward the resolution of this controversy has been focused upon governmental participation at the federal level; while the most direct interaction between the political process and the economic freedom of the general public probably occurs at the local level. Perhaps this observation is exemplified best by the application of municipal zoning procedures to the market for urban property. In many ways this market is described satisfactorily by the assumptions of the perfectly competitive market. There is a large number of independent buyers and sellers, none of whom has any substantial control of the market. Reasonably accurate information about the availability and prices of properties is readily available from real estate agents and classified advertisements. Finally, entry into and exit from the market is reasonably free, although transaction costs may be significant. However, even when urban property is undeveloped, it constitutes a farfrom-homogeneous product; and after development its heterogeneity becomes even more pronounced. Moreover, and most importantly for the purposes of this study, it is contended widely that this market is subject to a high degree of interdependence.' Allegedly, there exist between various types of land