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



acquisition of open space land, the cross and the ring shapes may involve a large group of
private landowners and consequently the administration or transaction costs to acquire
their land may be prohibitive, while a central park may be administratively more
desirable involving less private landowners. However, in case that acquiring open space
is extremely difficult, the cross-shaped open space might be a most desirable choice for
local land managers because the cross-shape requires a smaller amount of open space to
achieve a greater gain in the net social value.

To summarize, the ring shape with large radius is optimal in terms of the net
social value achieved but not efficient, while the across shape is most efficient in terms of
social value achievement for per unit open space preserved but may not be politically
defendable. A central circular open space may be a good alternative for both shapes of
open space by its reasonable efficiency and political desirability.

VI. Conclusions

Preserving open space has been an important issue for local governments. Given the
strong support of local residents for open space preservation, a practical question left to
local policy-makers is how they can finance the public investment in open space
preservation in a politically desirable way. Do local governments need to impose an
open space fee or raise the tax rate to finance open space preservation? Our economic
study shows charging a fee or raising the tax rate may not be necessary. The reason is
simple although the underlying mechanism is less explicit. People value and are willing
to pay for open space preservation in their neighborhoods. People pay for open space
through “vote with your feet” and consequently capitalize their valuation of open space

34



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