Land development restrictions and preemptive action – On the benefits of differentiated regulation

We address the problem of preemptive land development to avoid future regulation. We demonstrate that differentiated treatment can be beneficial in order to avoid pre-emption by landowners. We focus on how the development decision of landowners is affected by the costs of future development. While differentiated policies improve welfare, they require the regulator to be informed on landowners ’ types. Under asym-metric information, we use a mechanism design approach to show that a differentiated treatment of landowners can be beneficial. Our mechanism allows some landowners to receive a reduced stringency of future regulation levels against an ex ante payment