Deceptive Developers, Competitive Zoning Boards, And The Asymmetry Of Information

Suppose that a developer applies to a zoning board for approval of his proposed project. He might understate the infrastructural costs of the project in order to trick the board into approving it. This chicanery later will saddle the community with unexpectedly high costs. Its fiscal loss could be heavy if it competes with its neighbors for economic development. Competition prevents the board from extracting from the project a location rent that would cover unexpectedly high infrastructural costs. The board can eliminate the developer's incentive to mislead it by telling him that he will have to pay at least half of the infrastructural costs. Curiously, requiring him to pay all costs can reduce the loss of consumer surplus that is due to his exercise of market power in the private market. The analysis assumes that the board tries to maximize the community's monetary gain from the project.