I had an interesting exchange recently with Elena Irwin, an expert regional and community economist here at Extra Big State University, and all around nice person. The exchange started like this:
Elena: A while back I asked you a hypothetical question about optimal land use. As I remember it, my question was, if we could wipe the slate clean and plop down a new city based on today’s preferences and technologies, what would the optimal allocation of land uses look like in such a city. Well…
The rest of my message continued: A similar (somewhat insensitive) question has come up in a discussion I’m having with some people over whether New Orleans should be rebuilt. The question is: Is there the potential for long-run social welfare gains from the reallocation of resources caused by the flood? Besides the obvious reallocation of industry (oil/energy going to Houston, conventions going to other major cities, etc), is there the potential that the redevelopment of land in the area could result in a more efficient allocation of land use that what was there? Put another way, I see there is the possibility of what I will call ‘spatial inertia’ (just made that up off the top of my head) in existing cities. Once a land use pattern is established is difficult to change. So land use/development patterns based on technologies, industry, needs of the 19th and 20th century may be inefficient relative to the ‘optimal’ land use/development patterns today. Is there a term for this, or anyone who has thought about it? Elena's response: Tim: You’ve hit on a lot of themes. There’s a literature in urban economics that goes back to the mid-70s that views land development patterns as essentially what you say -- which is predicated on the assumption that housing is very durable. Here’s a quote from a paper I wrote a few years ago that touches on it (and compares it to the more standard monocentric urban bid-rent model): Urban patterns are seen as the result of a cumulative aggregation of past development, with densities reflecting the economic conditions that prevailed at the time the houses were constructed. In contrast to the monocentric theory, which takes capital as malleable, development may be largely irreversible and changes in densities through redevelopment the exception rather than the rule. Irreversibility implies densities need not be monotonically decreasing with distance, and if redevelopment does happen, it may produce discontinuities in the density gradient. So, ignoring the obvious costs associated with what’s happened, there certainly is the opportunity for achieving a more optimal land use pattern, or at least one that would be optimal for awhile, given the current state of transportation, technologies, pref, etc. But the reality of doing this in NO seems remote to me – there’s a memory of what was and there will be a strong desire to build it back as it was I am guessing. WARNING: OPINIONS BELOW The optimal land use pattern today depends on all past land use decisions. Sure some are reversible, but the vast majority of urban land use decisions have inertia. So, if we compare the current land use patterns--which may be optimal conditional on past decision--and compare them to the land use pattern that might be if we could wipe the slate clean and start over, we would be looking at two very different cities. Put another way, there is the potential for significant gains in long-run social benefits if we could distinguish urban land use decisions based on historical preferences, technologies, industry structures, etc. from the current optimal decisions. Now, don't get me wrong, I'm not arguing for going into every major urban area and wiping the slate clean to start over with a better land use plan based on today's conditions. But, if the situation presents itselfs by some random act of nature...well....doesn't it make good economic sense to at least consider it.
