Can Markets for Development Rights Improve Land Use and Environmental Outcomes?

EPA Grant Number: R833673
Title: Can Markets for Development Rights Improve Land Use and Environmental Outcomes?
Investigators: McConnell, Virginia D. , Safirova, Elena , Walls, Margaret
Institution: Resources for the Future
EPA Project Officer: Hahn, Intaek
Project Period: October 1, 2007 through March 31, 2009
Project Amount: $277,739
RFA: Market Mechanisms and Incentives: Case Studies and Experimental Testbeds for New Environmental Trading Programs (2006) RFA Text |  Recipients Lists
Research Category: Environmental Justice


In this project, we will evaluate the potential for transferable development rights (TDR) markets to achieve land use and environmental, in particular water quality, goals and assess the welfare effects of alternative TDR program designs. The project will identify the circumstances under which TDRs will be a useful tool for mitigating environmental externalities created by land use patterns. When TDRs are viable, the study will examine the economic and institutional factors and program design features that determine the success or failure of existing programs. An economic model of land use will be developed to analyze important features of TDR markets, and to assess how changes in TDR program parameters influence land use and water quality. In addition, the model will be used to calculate welfare effects of alternative TDR designs.


The project has two parts. Part I uses a traditional case study approach, analyzing economic and institutional factors that cause TDR markets to work in some cases and deter them from working in others. Part II develops a computable general equilibrium (CGE) land use model calibrated to the land use patterns and TDR outcomes in one Maryland county. We will link water effluent parameters to different land uses in the model and use the model to simulate alternative scenarios and design features of TDR programs. The model will be used to establish which rules and parameters are likely to yield desirable outcomes, both for land conservation and for water quality.

Expected Results:

Our research will shed light on the potential for a market-based trading program to be effectively used to achieve land use and associated environmental goals. The case studies and model runs will provide useful information for policymakers about (i) which environmental goals are best suited to TDRs, (ii) how best to design a TDR program to achieve desired goals, (iii) the welfare implications of different TDR programs and (iv) the trade-offs between land preservation and water quality. Another valuable output of the project is the CGE model of local land use. It will serve as a useful tool that can be applied to other geographical areas and used to analyze other policy instruments.

Supplemental Keywords:

sprawl, housing density, zoning, water pollution, land preservation, agriculture,

Progress and Final Reports:

  • 2008
  • Final