Welfare Economic Aspects of Land Use Planning
This paper develops a unifying framework for spatial and environmental economics, based on equilibrium considerations for population games. The main contribution of this paper consists of introducing a consistent concept for spatial welfare. Following the introduction of estimable locational sorting models for valuation methods in environmental economics, the relationship between the theoretical underpinnings of the hedonic pricing model and the bid rent concept in urban economics is re-examined. This is done along the definition of the ideal general equilibrium willingness to pay (GE-WTP) that is at the heart of most applications of locational sorting models in environmental economics. A GE-WTP should be able to account for the value of non-marginal changes in a spatially explicit distribution of local public goods. Commonly, such a GE-WTP is derived as a Hicksian WTP adjusted for endogenous prices. Endogenous prices are typically enforced by a market clearing condition, often a fixed supply, constraining the relocation of a population in response to the changes in local quality. This paper offers an alternative interpretation of a GE-WTP. It demonstrates how for a discrete choice formulation, a fixed supply generically results in a Nash equilibrium in a population game. Furthermore, it is shown that this Nash equilibrium corresponds exactly to a spatial equilibrium in urban economics. This observation allows for a novel spatially explicit approach to the evaluation of land policy options, combining current cost-benefit practice with the optimization of land use. Finally it is shown, how the GE-WTP can be adjusted for developers' decisions, based on the analogy with urban economic models. It allows this spatial welfare measure to be extended with endogenous, instead of fixed, supply. This makes the concept also suitable for comparing the social welfare implications of entirely different land use patterns.
|Date of creation:||Aug 2005|
|Date of revision:|
|Contact details of provider:|| Postal: Welthandelsplatz 1, 1020 Vienna, Austria|
Web page: http://www.ersa.org
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Feenstra, R.C., 1995.
"Exact Hedonic Price Indexes,"
95-11, California Davis - Institute of Governmental Affairs.
- Jorgen W. Weibull, 1997. "Evolutionary Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262731215, March.
- Brock,W.A. & Durlauf,S.N., 2003.
"Multinomial choice with social interactions,"
1, Wisconsin Madison - Social Systems.
- Dasgupta, Partha & M Ler, Karl-G Ran, 2000. "Net national product, wealth, and social well-being," Environment and Development Economics, Cambridge University Press, vol. 5(01), pages 69-93, February.
- Kerry Smith, V. & Sieg, Holger & Spencer Banzhaf, H. & Walsh, Randall P., 2004. "General equilibrium benefits for environmental improvements: projected ozone reductions under EPA's Prospective Analysis for the Los Angeles air basin," Journal of Environmental Economics and Management, Elsevier, vol. 47(3), pages 559-584, May.
- Dennis Epple & Holger Sieg, 1999. "Estimating Equilibrium Models of Local Jurisdictions," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 645-681, August.
- Nancy E. Bockstael, 1996. "Modeling Economics and Ecology: The Importance of a Spatial Perspective," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(5), pages 1168-1180.
- Patrick Bayer & Robert McMillan & Kim Rueben, 2003. "An Equilibrium Model of Sorting in an Urban Housing Market: A Study of the Causes and Consequences of Residential Segregation," Working Papers 03-01, Center for Economic Studies, U.S. Census Bureau.
- Scotchmer, Suzanne, 1986. "The short-run and long-run benefits of environmental improvement," Journal of Public Economics, Elsevier, vol. 30(1), pages 61-81, June.
- Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
When requesting a correction, please mention this item's handle: RePEc:wiw:wiwrsa:ersa05p386. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gunther Maier)
If references are entirely missing, you can add them using this form.