Planning: politics vs economics

Ruth Kelly wants to simplify planning laws, replacing public inquiries with independent commissions, which could speed up buildings of roads and airports.
However, economics tells us we don't need inquiries or commissions at all. We just need a clear allocation of property rights. This was pointed out by Ronald Coase in The Problem of Social Cost (pdf), summarized here.
Take for example the proposal to build a new airport. Part of the social cost of this will be airplane noise. How do we measure this cost?
Simple. We could give residents rights to quiet skies. Then, the airport builders would have to buy these rights. If they could do so, the benefits of the airport would exceed the cost, so it would be reasonable for the airport to go ahead. But if residents demanded too high a price for the builders' liking, that would be a sign that the cost exceeded the benefit, so the project wouldn't go ahead.
Alternatively, the builders could have a right to run flights, which residents could buy off them.
Either way, there's no need for inquiries and commissions. Trading will do the job - the only problem being the costs of getting people together to deal.
Coase thought it didn't matter where property rights were allocated, as long as they were clearly defined.
However, we know now that this isn't so. The endowment effect means people value things more highly once they have them. This means that, if people have a right to quiet skies, the airport is less likely to go ahead than if the airport builders have a right to run flights.
This, though, gives the government a policy lever. A growth-oriented government could grant rights to developers, a green-oriented one to residents.
So, why doesn't the government pursue this line rather than faff around with commissions?
A legitimate possibility is that the transactions costs of dealing in property rights might be prohibitively high.
But there's a less legitimate possibility. It's that politics and economics have very different attitudes.
Economics values clarity - clear property rights, clear policy goals (green vs growth). But politicians don't want to be seen to be making such clear decisions. They prefer to give the impression of "consultation" with the public rather than make a choice to either genuinely empower them, by giving them property rights, or to clearly choose growth over environmentalism.

Comments

[Mark Wadsworth]

Land Value Tax will do the job.

The airline people make bids to the government for the right to fly (sum "A").

The State then tots up by how much the LVT receipts from people living in surrounding area will change (sum "B"). Gardens will go down in value because of noise pollution (depressing receipts), but this is cushioned by the fact that there are more jobs etc in the area and you are closer to the airport. There will be extra LVT receipts from an airport compared to agricultural land.

If Sum B is positive, or if B is negative but smaller than A, then airport goes ahead. Else not.

[dsquared]

Mark, what work is land value tax actually doing in your example? As far as I can see, what you're talking about is a cost-benefit analysis of exactly the sort that is already carried out by big planning enquiries.

[Gdr]

I'm reminded of John Adams' proposal for an airport in Hyde Park.
http://www.geog.ucl.ac.uk/~jadams/PDFs/hyde%20park%20airport.pdf

[Mark Wadsworth]

Dsquared, it is the same sort of thing, just simpler and hence cooler.

Instead of local residents and airport arguing over who owes whom what, under LVT, the local residents see their LVT bill fall (assuming noise pollution outweighs extra jobs) instead of claiming compensation.

This LVT shortfall is funded out of extra receipts from auctioning landing slots and extra LVT from airport itself and local businesses.

[Will]

LVT might increase for home owners slightly off the flight path but near enough to sell or rent to people needing to be close to the airport.

[Paul]

Mark LVT would only work in the way you describe if it was levied at 100%. To take the airport example - being under a flightpath might knock £50k off the value of my home. If LVT was levied at 1% (for the sake of argument) then, yes, I save £500 a year in Tax but I've lost £50,000 of capital. The local Council might be better off in the way you describe but the individuals living under the flight path won't.

[Mark Wadsworth]

Will, Paul, well spotted.

The LVT of 1% I've long been proposing is based on replacing Council Tax, SDLT and Inheritance Tax (you can chuck in the TV licence fee according to taste), 1% of land values works out about revenue-neutral. As far as LVT is concerned, the higher the rate, the better (unlike income taxes).

[reason]

Surely, though this buying and selling noise pollution rights won't work. Everybody has to sell, and some may hold out for an exhorbitant price. This is why they have compulsory purchases for roads and railways. There will of course also be perverse announcement affects, with the news that an airport may be built resulting in hard bargainers deliberately buying property (and noise pollution rights) in the affected neighbourhood. You also have the problem that flight paths can change and that everybody is not equally effected, so calculating the impact of the airport on those rights is not really binary.

Sounds nice in theory, but I think it is totally impracticable.

[pseudonymous]

Presumably you would need some form of voting scheme, akin to shareholders deciding whether to agree to a takeover.

[pseudonymous]

Sudden flash of the obvious: this is clearly a case for our hosts Demand Revealing Referenda.

[jameshigham]

...But if residents demanded too high a price for the builders' liking...

Which, by definition, they would ...

[Dipper]

Stafford Beer tackled this kind of issue 35 years ago - the only link I can find is http://links.jstor.org/sici?sici=0030-3623(197107)22%3C133%3AJPS-OR%3E2.0.CO%3B2-S.

[Ian Bertram]

"We could give residents rights to quiet skies."

Who says they don't already have them? What gives the state the power to allocate such rights? Isn't this just another aspect of the appropriation of land rights by the state and others that you referred to here (http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2007/05/margaret_hodge_.html)

[Kirsten]

This, though, gives the government a policy lever. A growth-oriented government could grant rights to developers, a green-oriented one to residents.
So, why doesn't the government pursue this line rather than faff around with commissions?

Because faffing around with commissions is a way to toss a policy lever into the works without appearing to take any direct responsibility.

After all, the costs of the commission (dollars, time, inconvenience) become part of the equation, no?