Issues in the Developed World
Edited by H. S. Geyer
Chapter 6: Land Markets and their Regulation: The Economic Impacts of Planning
P. Cheshire and W. Vermeulen 1. Normative framework: welfare economics versus planning The great majority of the world’s population, and all those living in developed economies, live in societies in which the goods and services they consume are provided through markets and – subject to their incomes – they are free to choose what, where and how much to consume. But to varying degrees governments intervene and regulate all markets. So the regulation of land markets is not exceptional in itself; but it is exceptional in its form and severity. What economists call ‘land market regulation’, however, most people – including those who practise it – call land use ‘zoning’ or ‘planning’. This is definitely a form of regulation, however, since it determines the use of an economic resource according to rules and norms: prices and land markets are still influential, as we shall see below, but their influence is constrained and regulated by planning decisions. Underlying and guiding the form of most systems of market regulation there are general analytical principles derived from welfare economics, which build essentially on two ‘fundamental theorems’. The first of these theorems is that under certain conditions, the outcomes generated by markets are ‘efficient’ or ‘socially optimal’. The economic concept of efficiency has a very particular meaning: an outcome is socially optimal if no redistribution of ‘goods’ or reallocation of resources is possible which would not make at least one person worse off in welfare terms than they were previously. In other words, taking the real income distribution...
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