Breakdown of the market for developable land around a stochastic city with public goods

Time: 2011, Tuesday November 1, 13.00-14.00 hours
Location: CPB-office, Van Stolkweg 14, The Hague

Presentation: Wouter Vermeulen (CPB)
Co-author paper: Coen Teulings (CPB, University of Amsterdam)

Discussant: Gijsbert Zwart (CPB)

Language: English

Registration:  Please register by sending an email to seminars@cpb.nl.

Abstract subject: Owners of developable land in the vicinity of a city benefit from public goods in its centre without paying for them. We use a stochastic city model to investigate how this externality affects irreversible investment, both in public goods and in the conversion of rural into urban land, under alternative institutional arrangements. The first-best outcome obtains when the urban developer owns all land in the city and when either owners of developable land coordinate or when the urban developer has exclusive development rights. When the ownership of land outside the city is dispersed and the city has no exclusive development rights, a market for developable land is shown to break down. We conclude that exclusive assignment of development rights and the concentration of ownership of developable land help to ensure an efficient level of local public goods provision.

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