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Making Markets for Development Rights Work: What Determines Demand?

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  • Kopits, Elizabeth
  • McConnell, Virginia D.
  • Walls, Margaret

Abstract

Many economists see current land use patterns as inefficient due to various market failures, and planners argue that current patterns do not follow sound planning practice. One policy of interest to both groups is transferable development rights (TDR). TDRs allow the development rights from land that is preserved in an undeveloped state to be transferred to other areas where development can be made denser. This paper addresses one of the greatest difficulties TDR programs face-insufficient demand. We develop a simple theoretical model and estimate a TDR demand function using data from Calvert County, Maryland, one of the only regions where data on individual sales are available. We find that baseline zoning is a critical determinant of TDR demand- demand is high in low-density rural areas but not in the relatively high-density residential areas. We also identify many subdivision characteristics that are significant in explaining TDR use.

Suggested Citation

  • Kopits, Elizabeth & McConnell, Virginia D. & Walls, Margaret, 2005. "Making Markets for Development Rights Work: What Determines Demand?," Discussion Papers 10880, Resources for the Future.
    • Handle: RePEc:ags:rffdps:10880
    DOI: 10.22004/ag.econ.10880
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    References listed on IDEAS

    as
    1. Walls, Margaret & McConnell, Virginia D., 2004. "Incentive-Based Land Use Policies and Water Quality in the Chesapeake Bay," Discussion Papers 10843, Resources for the Future.
    2. Kelejian, Harry H & Prucha, Ingmar R, 1999. "A Generalized Moments Estimator for the Autoregressive Parameter in a Spatial Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(2), pages 509-533, May.
    3. John F. McDonald & Daniel P. McMillen, 2004. "Determinants of Suburban Development Controls: A Fischel Expedition," Urban Studies, Urban Studies Journal Limited, vol. 41(2), pages 341-361, February.
    4. McConnell, Virginia D. & Kopits, Elizabeth & Walls, Margaret, 2003. "How Well Can Markets for Development Rights Work? Evaluating a Farmland Preservation Program," Discussion Papers 10659, Resources for the Future.
    5. Paul Thorsnes & Gerald P. W. Simons, 1999. "Letting The Market Preserve Land: The Case For A Market‐Driven Transfer Of Development Rights Program," Contemporary Economic Policy, Western Economic Association International, vol. 17(2), pages 256-266, April.
    6. David E. Mills, 1989. "Is Zoning a Negative-Sum Game?," Land Economics, University of Wisconsin Press, vol. 65(1), pages 1-12.
    7. McDonald, John F & Moffitt, Robert A, 1980. "The Uses of Tobit Analysis," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 318-321, May.
    8. Daniel P. McMillen & John F. McDonald, 1990. "A Two-Limit Tobit Model of Suburban Land-Use Zoning," Land Economics, University of Wisconsin Press, vol. 66(3), pages 272-282.
    9. Rolleston, Barbara Sherman, 1987. "Determinants of restrictive suburban zoning: An empirical analysis," Journal of Urban Economics, Elsevier, vol. 21(1), pages 1-21, January.
    10. Carpenter, Bruce E. & Heffley, Dennis R., 1982. "Spatial-equilibrium analysis of transferable development rights," Journal of Urban Economics, Elsevier, vol. 12(2), pages 238-261, September.
    11. B E Carpenter & D R Heffley, 1981. "A Spatial Equilibrium Analysis of Flexible Zoning and the Demand for Development Rights," Environment and Planning A, , vol. 13(3), pages 273-284, March.
    12. McConnell, Virginia & Walls, Margaret & Kopits, Elizabeth, 2006. "Zoning, TDRs and the density of development," Journal of Urban Economics, Elsevier, vol. 59(3), pages 440-457, May.
    13. McMillen, Daniel P. & McDonald, John F., 1991. "Urban land value functions with endogenous zoning," Journal of Urban Economics, Elsevier, vol. 29(1), pages 14-27, January.
    14. Mills, David E., 1980. "Transferable development rights markets," Journal of Urban Economics, Elsevier, vol. 7(1), pages 63-74, January.
    15. Cannaday, Roger E & Colwell, Peter F, 1990. "Optimization of Subdivision Development," The Journal of Real Estate Finance and Economics, Springer, vol. 3(2), pages 195-206, June.
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    Cited by:

    1. Proeger, Till & Meub, Lukas & Bizer, Kilian, 2016. "The role of communication on an experimental market for tradable development rights," University of Göttingen Working Papers in Economics 271, University of Goettingen, Department of Economics.
    2. Till Proeger & Lukas Meub & Kilian Bizer, 2018. "Laboratory Experiments of Tradable Development Rights: A Synthesis of Different Treatments," Sustainability, MDPI, vol. 10(6), pages 1-19, June.
    3. Walls, Margaret, 2012. "Markets for Development Rights: Lessons Learned from Three Decades of a TDR Program," RFF Working Paper Series dp-12-49, Resources for the Future.
    4. McConnell, Virginia D. & Kopits, Elizabeth & Walls, Margaret, 2005. "Farmland Preservation and Residential Density: Can Development Rights Markets Affect Land Use?," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 34(2), pages 1-14, October.
    5. Tan, Rong & Wang, Rongyu & Heerink, Nico, 2020. "Liberalizing rural-to-urban construction land transfers in China: Distribution effects," China Economic Review, Elsevier, vol. 60(C).
    6. Chen, Chun & Yu, Li & Choguill, Charles L., 2020. "“Dipiao”, Chinese approach to transfer of land development rights: The experiences of Chongqing," Land Use Policy, Elsevier, vol. 99(C).
    7. Ferreira, António, 2020. "Reconsidering the merit of market-oriented planning innovations: Critical insights on Transferable Development Rights from Coimbra, Portugal," Land Use Policy, Elsevier, vol. 99(C).
    8. Proeger, Till & Meub, Lukas & Bizer, Kilian, 2017. "The role of communication on an experimental market for tradable development rights," Land Use Policy, Elsevier, vol. 68(C), pages 614-624.
    9. Yidi Wang & Ying Fan & Zan Yang, 2022. "Challenges, Experience, and Prospects of Urban Renewal in High-Density Cities: A Review for Hong Kong," Land, MDPI, vol. 11(12), pages 1-20, December.
    10. He Zhu & Xing Gao & Ying Lin & Yijing He, 2022. "Land-Development-Right Pricing Based on Spatial Characteristics in Urban Local Function Regeneration," Land, MDPI, vol. 11(12), pages 1-25, November.
    11. Kopits, Elizabeth & McConnell, Virginia & Miles, Daniel, 2009. "Lot Size, Zoning, and Household Preferences: Impediments to Smart Growth?," RFF Working Paper Series dp-09-15, Resources for the Future.

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    More about this item

    Keywords

    International Development;

    JEL classification:

    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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