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Building the City: Urban Transition and Institutional Frictions

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  • J. Vernon Henderson
  • Tanner Regan
  • Anthony J. Venables

Abstract

We model the building of a city, estimate parameters of the model, and calculate welfare losses from institutional frictions encountered in changing land-use. We distinguish formal and slum construction technologies; in contrast to slums, formal structures can be built tall, are durable, and non-malleable. As the city grows areas are initially developed informally, then formally, and then redeveloped periodically. Slums are modelled as a technology choice and do not depend on property rights per se; however institutional frictions may hinder their conversion to formal usage. Using unique data on Nairobi for 2003 and 2015 we develop a novel set of facts that support assumptions of the model and calculate welfare losses of conversion frictions. We track the dynamic evolution of the city, where in the core city about 35% of formal sector buildings were torn down over 12 years and replaced by buildings on average three times higher. For slums in older areas near the centre, even after buying out slumlords, formalization would yield gains amounting to over $17,000 per slum household, 30 times typical annual slum rent payments.

Suggested Citation

  • J. Vernon Henderson & Tanner Regan & Anthony J. Venables, 2016. "Building the City: Urban Transition and Institutional Frictions," SERC Discussion Papers 0196, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:sercdp:0196
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    1. Solow, Robert M. & Vickrey, William S., 1971. "Land use in a long narrow city," Journal of Economic Theory, Elsevier, vol. 3(4), pages 430-447, December.
    2. Riley, John G., 1974. "Optimal residential density and road transportation," Journal of Urban Economics, Elsevier, vol. 1(2), pages 230-249, April.
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    Cited by:

    1. Melanie Krause & André Seidel, 2020. "Land Scarcity and Urban Density within Cities," CESifo Working Paper Series 8660, CESifo.
    2. Wadjidou Boukari & Fenjie Long, 2023. "Reducing urban sprawl by optimizing housing production," Growth and Change, Wiley Blackwell, vol. 54(2), pages 529-549, June.
    3. Eduardo Souza-Rodrigues & Adrian L. Torchiana & Ted Rosenbaum & Paul T. Scott, 2020. "Improving Estimates of Transitions from Satellite Data: A Hidden Markov Model Approach," Working Papers tecipa-672, University of Toronto, Department of Economics.
    4. Ahlfeldt, Gabriel M. & Barr, Jason, 2022. "Viewing urban spatial history from tall buildings," Regional Science and Urban Economics, Elsevier, vol. 94(C).
    5. Guy Michaels & Dzhamilya Nigmatulina & Ferdinand Rauch & Tanner Regan & Neeraj Baruah & Amanda Dahlstrand, 2021. "Planning Ahead for Better Neighborhoods: Long-Run Evidence from Tanzania," Journal of Political Economy, University of Chicago Press, vol. 129(7), pages 2112-2156.
    6. Ahlfeldt, Gabriel M. & Barr, Jason, 2022. "The economics of skyscrapers: A synthesis," Journal of Urban Economics, Elsevier, vol. 129(C).
    7. Brotherhood, Luiz & Cavalcanti, Tiago & Da Mata, Daniel & Santos, Cezar, 2022. "Slums and pandemics," Journal of Development Economics, Elsevier, vol. 157(C).
    8. Letrouit,Lucie Michele Maya & Selod,Harris, 2020. "Trust or Property Rights ? Can Trusted Relationships Substitute for Costly Land Registration in West African Cities ?," Policy Research Working Paper Series 9310, The World Bank.
    9. Henderson, J. Vernon & Nigmatulina, Dzhamilya & Kriticos, Sebastian, 2021. "Measuring urban economic density," Journal of Urban Economics, Elsevier, vol. 125(C).
    10. Dave Donaldson & Adam Storeygard, 2016. "The View from Above: Applications of Satellite Data in Economics," Journal of Economic Perspectives, American Economic Association, vol. 30(4), pages 171-198, Fall.
    11. Venables, Anthony & Duranton, Gilles, 2018. "Place-Based Policies for Development," CEPR Discussion Papers 12889, C.E.P.R. Discussion Papers.
    12. Héctor M. Posada, 2018. "Informal housing, spatial structure, and city compactness," Journal of Regional Science, Wiley Blackwell, vol. 58(4), pages 822-836, September.
    13. Venables, Anthony J., 2017. "Breaking into tradables: Urban form and urban function in a developing city," Journal of Urban Economics, Elsevier, vol. 98(C), pages 88-97.
    14. Remi Jedwab & Mr. Prakash Loungani & Anthony Yezer, 2019. "How Should We Measure City Size? Theory and Evidence Within and Across Rich and Poor Countries," IMF Working Papers 2019/203, International Monetary Fund.
    15. Jedwab,Remi Camille & Pereira,Daniel & Roberts,Mark, 2019. "Cities of Workers, Children, or Seniors? Age Structure and Economic Growth in a Global Cross-Section of Cities," Policy Research Working Paper Series 9040, The World Bank.
    16. Garcia-López, Miquel-Àngel & Moreno-Monroy, Ana I., 2018. "Income segregation in monocentric and polycentric cities: Does urban form really matter?," Regional Science and Urban Economics, Elsevier, vol. 71(C), pages 62-79.
    17. Ali, Daniel Ayalew & Deininger, Klaus & Monchuk, Daniel, 2020. "Using satellite imagery to assess impacts of soil and water conservation measures: Evidence from Ethiopia’s Tana-Beles watershed," Ecological Economics, Elsevier, vol. 169(C).
    18. Lai, Lawrence W.C. & Davies, Stephen N.G. & Chan, Edwin H.W. & Chua, Mark Hansley & Lin, C.L., 2020. "The production and consumption of land use planning: A neo-institutional economic perspective & three Taiwan case studies of planning layering," Land Use Policy, Elsevier, vol. 99(C).
    19. Bird, Julia & Venables, Anthony J., 2020. "Land tenure and land-use in a developing city: A quantitative spatial model applied to Kampala, Uganda," Journal of Urban Economics, Elsevier, vol. 119(C).
    20. Anthony J Venables, 2018. "Urbanisation in Developing Economies: building cities that work," REGION, European Regional Science Association, vol. 5, pages 91-100.
    21. Jedwab, Remi & Loungani, Prakash & Yezer, Anthony, 2021. "Comparing cities in developed and developing countries: Population, land area, building height and crowding," Regional Science and Urban Economics, Elsevier, vol. 86(C).
    22. Sungin Ahn & Richard Arnott, 2022. "Market power and urban housing development," Environment and Planning B, , vol. 49(3), pages 915-932, March.

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    More about this item

    Keywords

    city; urban; urban growth; slums; urban structure; urban form; housing investment; capital durability;
    All these keywords.

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location
    • H - Public Economics

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