Strategic Behavior and the Environment > Vol 4 > Issue 4

Land Development Restrictions and Preemptive Action - On the Benefits of Differentiated Regulation

Andreas Lange, University of Hamburg, Germany, Xiangping Liu, University of Gothenburg, Sweden,
Suggested Citation
Andreas Lange and Xiangping Liu (2014), "Land Development Restrictions and Preemptive Action - On the Benefits of Differentiated Regulation", Strategic Behavior and the Environment: Vol. 4: No. 4, pp 393-414.

Published: 18 Dec 2014
© 2014 A. Lange and X. Liu
Principal-Agent,  Uncertainty
Preemptive actionAsymmetric informationMechanism designDifferentiated regulationLand development

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In this article:
1. Introduction
2. Theoretical Model
3. Conclusions


We address the problem of preemptive land development to avoid future regulation. We demonstrate that differentiated treatment of landowners is generally essential to optimally deal with preemption. While differentiated policies improve welfare, they require the regulator to be informed about landowners' types. We use a mechanism design approach to deal with the case of asymmetric information. We show how a differentiated treatment of landowners is still feasible and beneficial. Our mechanism allows some landowners to face less stringent future regulation levels against a payment that is made ex ante or is anticipated ex ante. More generally, agents (landowners) may voluntarily commit to more stringent regulation if this gives them more leniency earlier or later. Our paper thereby shows the advantages of allowing such trade-offs by linking regulation across multiple periods.