When land-use regulations make sense

Friday, August 28th, 2009

Richard Epstein recently visited the Norwegian city of Bergen and came away with an insight into when land-use regulations make sense:

Medieval Bergen was built on a sliver of land hemmed in by the mountains to the east and an inlet from the North Sea to the west. The city was an early trading center, which took in stockfish from the north, which was then shipped out in exchange for grain from the south. From about 1360 to 1550 Bergen was a commercial outpost of the German Hanseatic League. Space was at a premium. Stone was not available for construction, except at a prohibitive price. The tightly packed structures were all made of all-too-flammable wood. Major fires ravaged Bergen from the 11th century onward. No structures today date from before the huge fire of 1702, which destroyed the city.

Risks this large required firm collective action. From earliest times, Bergen was subject to strong laws that regulated every aspect of its operation. The most obvious laws were those which specified what kinds of wood and other materials should be used in construction of roofs and walls. Those rules were not enough. Other regulations dug far more deeply. Most strikingly, the risk of fire forced a mandated partial conversion from private to common ownership. Kitchens were much too dangerous to have in large numbers, so all the cooking was concentrated in a single communal location, tightly watched and inspected. Other heating was concentrated in large assembly rooms. Lamps were forbidden in dark corridors during long and cold winters. Certain businesses, like gold smelting were only allowed on dirt floors in order to further minimize the risks of combustion.

And it all made sense. One prediction of modern economic theory is that ex ante regulations against compensable losses will be less pervasive in circumstances where ex post compensation is possible through the tort system. But the tort law — even the criminal law — could not provide deterrence equal to the risk at hand. Who knew who started a fire, or who contributed to its acceleration? Even if the wrongdoer could be identified, he could not pay for the losses imposed, assuming he survived the catastrophe.

Similarly, a fire insurance market was not viable because the high correlation of risk negated any possibility of loss spreading. The only legal rule that had real traction was the rule of public necessity that required the compensation of anyone whose home was consciously burned to protect the other properties from destruction. And that rule was only applied when the other homes were saved, where the limited burden was divided among others. But for the most part, it was either land-use regulation or nothing.

People don’t make the same “sensible” conclusion Epstein makes:

The sensible normative conclusion is that as crowding declines, as building materials and sanitation improve, the case for extensive land use planning gets weaker than it was nearly 1,000 years ago. But alas, we do not see less land planning. We see more, by huge amounts. We just redefine externalities to include everything from neighbors with the wrong color doors on their houses, to the wrong type of people living and working behind those doors.

(Hat tip to Mike Gibson, who’s more interested in futuristic seasteading than medieval cities.)

Leave a Reply