Do urban redevelopment incentives promote asset deterioration? A game-theoretic approach
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The elapsed time between a government’s announcement of its intention to redevelop and the launch of the new construction may often be quite lengthy. This study uses a game-theoretic framework to examine the effect of the option to redevelop on the quality of the existing housing stock during this extended pre-redevelopment period. We show that the benefits that accompany future redevelopment may lead to accelerated deterioration in the pre-redevelopment period. Moreover, we identify circumstances under which there exists a unique perfect Nash equilibrium where, in order to discourage objections by other homeowners, those who support redevelopment intentionally promote structural deterioration during the pre-redevelopment period. Our results highlight the need to shorten the period of time between the announcement of the option to redevelop and its implementation.
KeywordsRedevelopment Housing maintenance Neighborhood effect Incentives Game theory
I thank Danny Ben-Shahar, Elad Kravi, Yuval Arbel, Ji Won Lee, the anonymous referees and participants of the 2019 Israel Regional Science meeting and the 59th ERSA Congress for helpful comments. I thank the Alrov Institute for Real Estate Research for the financial support.
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