Urban Growth Externalities and Neighborhood Incentives: Another Cause of Urban Sprawl?
AbstractThis paper suggests a cause of low density in urban development or urban sprawl that has not been given much attention in the literature. There have been a number of arguments put forward for market failures that may account for urban sprawl, including incomplete pricing of infrastructure, environmental externalities, and unpriced congestion. The problem analyzed here is that urban growth creates benefits for an entire urban area, but the costs of growth are borne by individual neighborhoods. An externality problem arises because existing residents perceive the costs associated with the new residents locating in their neighborhoods, but not the full benefits of new entrants which accrue to the city as a whole. The result is that existing residents have an incentive to block new residents to their neighborhoods, resulting in cities that are less dense than is optimal, or too sprawling. The paper models several different types of urban growth, and examines the optimal and local choice outcomes under each type. In the first model, population growth is endogenous and the physical limits of the city are fixed. The second model examines the case in which population growth in the region is given, but the city boundary is allowed to vary. We show that in both cases the city will tend to be larger and less dense than is optimal. In each, we examine the sensitivity of the model to the number of neighborhoods and to the size of infrastructure and transportation costs. Finally, we examine optimal subsidies and see how they compare to current policies such as impact fees on new development.
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Bibliographic InfoPaper provided by UMBC Department of Economics in its series UMBC Economics Department Working Papers with number 09-106.
Length: 24 pages
Date of creation: 24 Aug 2009
Date of revision:
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Postal: UMBC Department of Economics 1000 Hilltop Circle Baltimore MD 21250, USA
Web page: http://www.umbc.edu/economics
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Find related papers by JEL classification:
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
- D60 - Microeconomics - - Welfare Economics - - - General
- R28 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Government Policy
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-10 (All new papers)
- NEP-GEO-2009-10-10 (Economic Geography)
- NEP-URE-2009-10-10 (Urban & Real Estate Economics)
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