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Building the city: sunk capital, sequencing, and institutional frictions

Listed author(s):
  • Henderson, J Vernon
  • Regan, Tanner
  • Venables, Anthony J

This paper models a growing city, and focuses on investment decisions and consequent patterns of land use and urban density. We distinguish between formal and informal sector construction. The former can be built tall (at a cost), but structures once built are durable and cannot be modified. Investments are based on expectations about future growth of the city. In contrast, informal structures are malleable and do not involve sunk costs. As the city grows areas will initially be developed informally, and then formally; formal areas are redeveloped periodically. This process can be hindered by land right issues which raise the costs of converting informal to formal sector development. The size and shape of the city are sensitive to the expected returns to durable investments and to the costs of converting informal to formal sector usage. We take the model to data on the built environment for Nairobi, to study urban growth and change between 2004 and 2015 in a context where population is growing at about 4% a year. We study the evolution of building footprints and heights, development at the fringe, infilling, and redevelopment of the formal sector.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 11211.

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Date of creation: Apr 2016
Handle: RePEc:cpr:ceprdp:11211
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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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