Tax Increment Financing for Optimal Open Space Preservation: an Economic Inquiry

^   P'(a* + a⁰) ≤      1                τw

P(a* + a⁰)   L - a⁰ - a*  (L - a⁰)wτ + a*δ

We derive the following proposition.

Proposition 2 If local residents prefer preserving open space, and if the utility
function of local residents is concave in preserved open space, there is an optimal (or
incremental) amount of open space that is socially efficient and can be fully financed by
property tax increment due to the capitalization of open space amenity, if the pre-
preservation marginal change rate of equilibrium land price with respect to open space,
or local residents’ standardized pre-preservation willingness to pay for open space, is

2          1δ

greater than the larger of------ and------ (--+1) , and if the post-preservation

L -a⁰     L -a⁰ τw

marginal change rate of equilibrium land price with respect to open space, or local

residents’ standardized post-preservation willingness to pay for open space is less than

1            τw

L - a⁰ - a* (L - a⁰)wτ + a*δ

IV. Effect of Spatially Heterogeneity in Open Space Amenity

The theoretical model constructed in section 2 implicitly assumes a spatially
homogeneous open space amenity as if local residents equally receive the same open
space amenity, as represented by the amount of preserved open space. Consequently, the
preserved open space equally raises the equilibrium land price of the remaining land. In
some instances such as the considered community is of small spatial scales, or the
existence value of open space is prominent to local residents, this assumption may be

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