A transaction-cost theory of land use planning and development control

Discussion of public land use planning and development control has addressed the question: why does society choose this way to control the production of the built environment? This paper’s rationale for public land use planning and development control is based on transaction-cost theory; namely that the assignment of property rights in land and third-party enforcement are essential for the efficient operation of markets. The outline of an integrated economic-political transaction-cost theory is developed to analyse the transactions involved in production of the built environment. The critical characteristics of these transactions and their implied transaction costs are matched to alternative governance structures—planning by public agencies, privatisation or delegation of planning and development control functions and voluntary enforcement through contract zoning or restrictive covenants. This paper offers a conceptual model that can be applied to the analysis and design of planning and development control systems.