Two Economic Rules for Town Planning: a Critical Note

For a discussion of the role of the price system in a general context see, e.g., R.G. Lipsey , An Introduction to Positive Economics, 2nd ed. (London: Weidenfeld & Nicholson, 1966), Chapters 5, 13 and 37, P.A. Samuelson , Economics: An Introductory Analysis, 6th ed. (New York: McGraw-Hill, 1961), Chapter 3 and Appendix to Chapter 30, G.J. Stigler , The Theory of Price, 3rd ed. (New York: MacMillan, 1952), Chapter i. A more specialist study of welfare economics is given by Tibor Scitovsky, in Welfare and Competition (New York: Richard D. Irwin, 1951). See also H.G. Johnson , 'The Economic Approach to Social Questions ', Economica, N.S.35 (February 1968).

W. Lean and B. Goodall , Aspects of Land Economics (London: The Estates Gazette, 1966), p. 229. An earlier version of the rule is given by W. Lean in 'Town Planning and Economics', The Journal of the Town Planning Institute, 52 (February 1966).

Robert M. Haig . 'Toward an Understanding of the Metropolis ', Quarterly Journal of Economics, XL (May 1926), p. 421.

Lean and Goodall , op. cit. p. 228.

ibid.

ibid.

The minimisation of the costs of friction rule has been criticised previously by William Alonso. The analysis is strengthened and certain errors are corrected in this note. See William Alsonso , Location and Land Use ( Cam-bridge, Mass.: Harvard U.P., 1964), pp. 101-5.

Haig , op. cit, p. 421.

R.U. Ratcliff , Urban Land Economics (New York: McGraw-Hill, 1949), p. 385. See also 'The Dynamics of Efficiency in the Locational Distribution of Urban Activities', The Metropolis in Modern Life, ed. Robert M. Fisher (New York: Doubleday & Co., 1955), pp. 125-43, reprinted in Readings in Urban Geography, ed. H. M. Mayer & C. F. Kohn (Chicago: University of Chicago Press, 1959), pp. 299-324.

James A. Quinn , Human Ecology (New York: Prentice Hall, 1950), p. 282.

Alonso (op. cit, p. 104) states that 'zoning regulations that set maximum lot sizes, where binding, would unequivocally reduce the costs of friction'. This is not true since a restriction on lot sizes for activities which had an inelastic demand for land would increase total land values, and the total reduction in transport costs need not necessarily exceed this increase. Therefore the costs of friction may be increased.

In Alonso's version of this argument only the landlord lacks perfect knowledge ( Alonso , op. cit, p. 104). If this were the only imperfection other persons would bid the price of the land up to the market value, since they would be aware that the price was low. Therefore other landlords and tenants must also lack perfect knowledge. It is also necessary that the tenants of the site lack perfect knowledge, because, if they were aware of the alternative costs of the land, they would adjust their production policies accordingly. The land would be priced by them at its alternative cost and production would be carried out in exactly the same way as if no imperfection in the land market existed. Efficiency would not therefore be reduced by the imperfection. The low price of the land would be treated as a windfall gain by the tenant.

The theoretical background to this criticism of the rule is made clear in Alonso , op. cit, especially pp. 111-13.

Lean & Goodall , op. cit, p. 228.

Ratcliffe , Readings in Urban Geography, p. 304, and The Metropolis in Modern Life, p. 129.