Chapter 10

Sources of Inefficient Use and Conversion

In some cases, without government regulation, market allocations of land
is not efficient. The problems commonly arise in the industrialized
countries such as sprawl & leapfrogging, incompatible land uses ,
undervaluation of environmental amenities, the effects of taxes on land-
use conversion, and market power. Some of these problems may also
plague developing countries. We will discuss how these factors cause
inefficiency in land allocation.

Sprawl and Leapfrogging

Sprawl occurs when land uses in a particular area are inefficiently
dispersed, rather than efficiently concentrated. The related problem
of leapfrogging refers to a situation in which new development
continues not on the very edge of the current development, but
farther out. While developers leapfrog over contiguous, perhaps
even vacant, land in favor of land that is farther from the center of
economic activity. For example, sssuming the cars used for
commuting are fueled by gasoline internal combustion engines,
dispersal drives up the demand for oil (including imported oil),
results in higher air-pollutant emissions levels (including greenhouse
gases), and increases the need for more steel, glass, and other raw
materials to supply the increase in the number of vehicles
demanded. One set of inefficient incentives can be found in the
pricing of public services. The developer faced the trade off bteween
developing the land more densely within currently served areas and
developing the land outside those areas, thereby promoting
inefficient levels of sprawl. By lowering the cost of developing
farther out, it also increases the likelihood of leapfrogging. This can
also bring the negative externalities, as potential residential buyers
choose where to live, transportation cost matter because of living
farther out.
Incompatible Land Uses
 The value of a parcel of land will be affected not only by its location,
but also by how t he nearby land is used. For example, houses near
the airport are affected by the noise and neighborhoods near a toxic
waste facility may face higher health risks. Another controversial
example is an ongoing battle over the location of large industrial
farms where hogs are raised for slaughter, these odors and water
pollution from animal waste fall on the neighbors. Since these cost
are externalized, they tend to be ignored or undervalued by hog
farm owners in decisions about the land, creating bias.
Undervaluaing Environmental Amenities
Some of the landowner may undervalue the enviromental amenities,
because many of the beneficial ecosystem goods and services
associated with a particular land use may also not accrue
exclusively to the landowner. If the owner of the large farm that
provides beautiful vistas is approached by someone wanting to buy
it for, say, residential development, any self-interested farmer would
not consider the loss of the external benefits of the open space to
wildlife and to travelers when setting a price. As a result, these
benefits are likely to be ignored or undervalued by the landowner,
thereby creating a bias in decisions affecting land use. Specifically,
in this case, uses that involve more of the undervalued activities will
lose out to activities that convey more benefits to the landowner
even when, from societys perspective, that choice is clearly
inefficient. Subject to inefficient conversion due to the presence of
positive externalities involves direct protection of those assets by
regulation or statute.
The Influence of Taxes on Land-Use Conversion
Governments use taxes on land (and facilities on that land) as a
source of revenue, even many local governments use it to fund such
municipal services as education. In addition to raising the revenue,
taxes also can affect incentives to convert land from one to use
another which can be not efficient. The tax base (the value of the
land) is usually determined either by the market value, as reflected
in a recent sale, not by the current use. For example, if the farming,
 is located in an area under significant development pressure, the
tax assessment may reflect the development potential of the land,
not its value in farming. Since the value of developable land is
typically higher, potentially much higher, the tax payments required
by this system may raise farming cost (and lower net income)
sufficiently as to promote an inefficient conversion of farmland to
development.
Market Power
The total supply of land is fixed. Market power allows the seller to
charge inefficiently high prices, market power can frustrate the
ability of the market to achieve efficiency by preventing transfers
that would increase social value. One example of this problem is
when market power inhibits government acquisitions to advance
some public purpose. The private land owner with market power
could inefficiently limit the amount of land acquired by the public
sector to provide public access to such amenities as parks, bike
paths, and nature trails. The main traditional device for controlling
the frustration of public purpose problem is the doctrine known as
eminent domain. Which the government can legally acquire private
property for a public purpose by condemnation as long as the
landowner is paid just compensation.

Special Problems in Developing Countries

Insecure Property Rights
In many developing countries, property rights to land are either
informal or nonexistent. In these cases land uses may be
determined on a first-come, first-served basis and the occupiers,
called squatters, do not actually hold title to the land. This can
lead to efficiency and equity problem. Because there is no clear
about the holder of the land, affects both the nature of the land use
and incentives to preserve its value and caused the inefficiency.
From the equity aspect points out that the absence of property
rights gives occupiers no legal defense against competing claims.
For example, that some indigenous people have sustainably used a
 piece of land for a very long period of time, but any implicit property
rights they hold are simply unenforceable.
The Poverty Problem
Main problems in some developing countries is they have no ability
to invest in land improvements due to limited labor, land, and cash
contraints. They just have the land and unskilled labor as their
principal assets. This degradation of land, due to inadequate
investment in maintaining it, can cause farmers to migrate from that
degraded land to other marginal land, only to have it suffer the
same fate. For similar reasons, poverty can exacerbate tropical
deforestation, promote overgrazing, and hasten the inefficient
conversion of land to agriculture.
Government Failure. While both property rights and poverty can
be sources of the inefficient allocation of land, government failure
can be as well. It occurs when the public policies have the effect of
distorting land-use allocations. A common example involves building
roads into previously preserved Innovative Market-Based Policy
Remedies 249 land, rendering that land suitable (by increasing
access and lowering transportation costs) for a number of new land
uses. In this case, by lowering transportation costs, the government
makes the bid rent functions flatter and, coupled with the
undervaluation of environmental amenities, this can lead to an
inefficient conversion of land.