Working Paper No. 04-03
Endogenous Open Space Amenities in a Locational Equilibrium
Randall P. Walsh
Little is known about the equilibrium impact of open space protection and growth control policies on the entire metropolitan landscape. This paper is an initial attempt to evaluate open space policies using an empirical approach that incorporates the endogeneity of both privately held open space and land conversion decisions in a locational equilibrium framework. The analysis yields four striking results. First, when one allows for endogenous adjustments in privately held open space, increasing the quantity of land in public preserves may actually lead to a decrease in the total quantity of open space in a metropolitan area. Second, different strategies for spending the same amount of money to purchase open space have markedly different welfare implications. Third, partial equilibrium welfare calculations are extremely poor predictors of their general equilibrium counterparts. And finally, the analysis suggests that while a growth ring strategy is most effective in reducing total developed acreage in the metropolitan area, this reduction in developed acreage is associated with a large net welfare loss.
In addition to its policy relevance, The paper makes two methodological contributions to the locational equilibrium literature. First, the analysis considers a Nash equilibrium with endogenous public goods where these goods arise 'naturally' as a result of land market outcomes. This is in contrast to the work of Epple, Romer, and Sieg (2001) who consider endogenous public goods that are consistent with majority voting. Second, unlike previous work with empirical locational equilibrium models, the analysis incorporates an empirically estimated supply model into the locational equilibrium framework. These methodological contributions are central to the resulting policy analysis.