Coase, spatial pricing and self-organising cities

Summary. Modern computational techniques offer new horizons for urban economics in the form of agent-based simulation frameworks. This paper reports on a cellular automata (CA) simulation in which urban land transforms on the basis of locally optimal bargaining between developers and local communities (local governments). Because CA is an explicitly spatial modelling methodology, the space – time–speci c paths to global equilibrium can be observed. Because it is an atomistic methodology (cells represent decision units), it is suitable for articulat-ing microeconomic theories of urban processes including planning. We present a space – time– speci c simulation of cities evolving under two alternative planning regimes. In one, the community has property rights and uses planning conditions, planning gain, impact fees and so on to ensure that each development occurs at a socially optimal density. This is a theoretically simpli ed rendition of the British development control system—simpli ed in the sense of acting from a position of perfect knowledge and having a single objective of optimising locational externalities. In the other simulation, developers have the right to develop but the community is allowed to make (rather than receive) compensatory payments in order to achieve socially optimal land-use patterns and densities. Decision-making in both systems is local and sociall