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Sustainable Development

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By Andrew Ebenbach

https://www.alm.com/the-city-of-dreams-new-york-citys-skyline-at-twilight/

The Goal:

This project’s goal is sustainable development by means of improving infrastructure in urban areas.  I like this topic for a few reasons. For one, this topic falls into the field of economics, which is an area that I’m deeply interested in. This topic also directly affects me because I live in a major city and next year I will be attending college in a different major city. This topic is important to many people; cities are growing, metropolitan areas are expanding, and populations are becoming more and more concentrated. Sustainable development is necessary to keep city-dwellers happy and healthy. As urban areas expand, the quality of living in these areas can deteriorate.

The Problem:

Things like overcrowding, high costs, and urban rot can all occur from urbanization and contribute to a decrease in the quality of living. With investment in infrastructure, both new and old, many of these problems can be solved. In order to do so, both the private and public sector need to invest more into infrastructure. Increased funding for infrastructure in cities would allow us to build homes, waste management facilities, roads, etc. we could also improve and repair old parts of these cities.

While there are many many factors contributing to deteriorating infrastructure. This project will mainly focus on the issue of Rent Control and “N.I.M.B.Y.ism” (Not In My Back Yard). This issue tends to be divisive, so feel free to voice your opinion in the discussion section.

A common sentiment among residents in growing cities is to halt new developments in their areas. The most common arguments I’ve heard for this are the following: development cause the lowering of property values, pollution, the disruption of their communities’ “feel”, and traffic. However, I believe the problems caused by lack of development are worse than these in most cases. Cities can’t handle growing populations if new developments aren’t taking place. (Also worth mentioning, living in larger buildings tends to be more environmentally friendly than low density living.) When new residential spaces aren’t being built, rent and property values in these areas tend to sky rocket, making it harder for most people to live in these areas. This happens because the supply of housing in the area remains stagnant as more people try to move in. NIMBYs also like to block new public infrastructure from being built, which is necessary for a healthy city for various reasons, but this project will be more focused on maintaining affordable high quality living spaces.

When rent becomes high, cities often try to implement rent ceilings. Rent control is one of the few topics that virtually all economists agree on; it does more harm than good. Rent control de-incentivizes investment from landlords into their properties. This leads to the deterioration of infrastructure. It also de-incentivizes investment into new infrastructure.

Game Theory:

The Matrix:

A: Landowners lose on investment. Tenants’ homes improve but overcrowding occurs with no new homes being built.

B: Landowners gain on investment. Rent skyrockets.

C: Same as A.

D: Same as B.

E: Landowners gain on investment. New apartments being built, but old infrastructure deteriorates and rent control slows development.

F: Landowners lose on investment. No new homes, old homes deteriorate, and rent is high.

G: Landowners lose. No new homes, and old homes deteriorate.

H: Landowners gain on investment. New apartments being built but old infrastructure deteriorates.

I: Landowners break even. New homes and low rent, but development slowed by rent control.

J: Landowners break even. High rent and no new homes.

K: same as A

L: Landowners gain. New homes, old infrastructure improves, rent is steady due to increase in supply of homes.

M: Landowners break even. No new homes, and homes deteriorate.

N: Landlords break even. No new homes, homes deteriorate, and rent is high.

O: Same as M

P: Same as N

Nash Equilibrium:

Pareto Optimal:

Game Theory Solutions Explained:

In case you aren’t proficient in game theory, this section is meant to explain the difference in the ideas behind Nash Equilibrium and Pareto Optimal solutions. In this case Pareto and Nash found the same solution. However, Pareto and Nash can disagree. In a Nash equilibrium, each individual player is using the strategy which will give them the highest payout given that the other players will not change their strategy. In Nash solutions, both players are doing whats in their best individual interest. In a Pareto optimal solution, there are no other outcomes which would give both players a higher payoff. Pareto optimal solutions can be viewed as being socially optimal among the players. In both these solutions, landowners should invest in new and old infrastructure while the government should allow new building projects and not regulate rent prices.

The Solution:

The solution to maintaining and building new infrastructure would be to not implement rent control or restrict new building projects and to incentivize landowners to invest in new and old infrastructure. My policy proposal would be to get rid of all rent control and to increase the number of new building projects allowed by cities. Landowners will naturally increase their investment into infrastructure.

My project’s “call to action” does not really require any sort of activism. My project’s goal is to inform voters about the issues with these protectionist policies.

Survey:

https://forms.gle/nywZ9neihTYB8ha7A

Extra Reading:

https://www.econlib.org/library/Enc/RentControl.html

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COMMENTS: 1
  1. April 24, 2019 by Adam Lavallee

    Great use of game theory! To extend, what could the payoffs be a function of? Or what would make them (at least semi-)probabilistic?

    Is there any data that would support the payoffs as you described?

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