Greening by the market? Distortions caused by fiscal incentives to build on brownfield land

This is a theoretical paper which draws on the existing land-planning and state failure literatures to underpin its key assumptions and to provide an appropriate context. Its main purpose is to consider the connection between capital markets and brownfield development. The paper begins with a summary of the various explanations put forward for why the private sector appears reluctant to build on brownfield, and offers a previously overlooked possible cause: the impact of asymmetric information on credit markets for residential construction. The paper then moves on to its main focus by considering state failures in the allocation of land and the likely impact of information problems on the success of fiscal measures to encourage brownfield development. As a result, a new form of possible state failure in land use intervention is identified that arises out of the link between fiscal policy and the financial market treatment of brownfield sites. This insight adds to the broader category of research that considers state failures in general.