Land Use Planning as Information Production and Exchange: an Empirical Analysis of the Uncertainty Reduction Effect

Land use planning practices have been economically justified as an efficient means of producing and distributing valuable information relevant to property markets and further reducing the intrinsic uncertainties and transaction costs involved in land development processes. However, although this method of justification, in addition to traditional welfare-economics-based rationales, has been adopted to support government interventions in land use, not much empirical evidence for the claim has been reported. In order to fill this gap, this study attempts to empirically validate the claim by focusing on a particular case, namely urban fringe land markets where farmland owners make decisions under uncertainties regarding the timing of potential land development for urban uses. First, through the exploration of land use data in Oregon, distinct farmland use patterns are found, consistent with the expectation that land use planning for the fringe areas reduces the uncertainties and therefore helps farmland owners make informed decisions. Furthermore, through cross-sectional regression analysis using 82 single-county MSAs’ data, a positive effect of the presence of land use planning efforts on agricultural investment levels is detected; this may indicate planning’s real contribution to uncertainty reduction. The effect is found to be statistically significant in MSAs with relatively larger shares of livestock and fruit production (as opposed to crops), which generally require a greater amount of sunk costs and a longer period of operation to result in profits.