Why Oppose TDRs?:
Transferable Development Rights Can Increase Overall Development

Abstract

Economists have long argued that systems of marketable permits are a cost-effective means of regulating externalities. Though these ideas have only recently been implemented in the field of pollution control, transferable development rights (TDRs) have been used for decades by city planners in many locales. Most opponents of permit trading contest the granting of property rights to the originators of harmful effects on ethical grounds, and rarely argue that such schemes increase the total external harm. This paper formalizes the second argument by showing that in a partial equilibrium model of urban zoning, replacing a uniform height zoning rule with a TDR system can lead to greater overall development.

Key words: Transferable development rights; marketable permits; zoning.

JEL classification: R1; R52; H23.

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