Building the city: sunk capital, sequencing andinstitutional frictions

J. Vernon Henderson, Tanner Regan and Anthony Venables

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper models a growing city, and focuses on investment decisions and consequent patterns of land use and urban density. We distinguish between formal and informal sector construction. The former can be built tall (at a cost), but structures once built are durable and cannot be modified. Investments are based on expectations about future growth of the city. In contrast, informal structures are malleable and do not involve sunk costs. As the city grows areas will initially be developed informally, and then formally; formal areas are redeveloped periodically. This process can be hindered by land right issues which raise the costs of converting informal to formal sector development. The size and shape of the city are sensitive to the expected returns to durable investments and to the costs of converting informal to formal sector usage. We take the model to data on the built environment for Nairobi, to study urban growth and change between 2004 and 2015 in a context where population is growing at about 4% a year. We study the evolution of building footprints and heights, development at the fringe, infilling, and redevelopment of the formal sector.

Keywords: city; urban; urban growth; slum development; urban structure; urban form; housing investment; capital durability (search for similar items in EconPapers)
JEL-codes: J01 R14 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2016-04
New Economics Papers: this item is included in nep-iue and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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