STRATEGIC GROWTH CONTROLS

This paper considers the strategic adoption of policies to control urban growth in a closed system of communities. We show that welfare-decreasing growth controls may be enacted even by profit-maximizing developers. This is a strong result, since developers are more likely to have incentives that are consistent with efficiency than are voters. The advantage of controlling growth is that it exerts a negative externality on uncontrolled communities; a higher population leads to a lower utility level, which makes consumers willing to pay more to live in a controlled community. We also prove that more restrictive growth controls are imposed when the negative effect on uncontrolled communities is stronger. In other words, there is more exclusion when the social cost of exclusion is higher. Finally, we establish that growth controls that restrict population are not strategically equivalent to those that act on the price of development. In particular, population controls are strategic substitutes, while price controls are strategic complements.