This paper models a growing city, and focuses on investment decisions and consequent patterns of land use and urban density. It distinguishes between formal and informal sector construction; the former can be built tall (at a cost), but structures once built are durable and cannot be modified. Investments are based on expectations about future growth of the city. In contrast, informal structures are malleable and do not involve sunk costs. As the city grows areas will initially be developed informally, and then formally; formal areas are periodically redeveloped. This process can be hindered by land right issues which raise the costs of converting informal to formal sector development. The size and shape of the city are sensitive to the expected returns to durable investments and to the costs of converting informal to formal sector usage.
The authors take the model to data on the built environment for Nairobi, to study urban growth and change between 2004 and 2015 in a context where population is growing at about 4% a year. They study the evolution of building footprints and heights, development at the fringe, infilling, and redevelopment of the formal sector.
This work is part of the Research on Growth and Urbanisation in Low Income Countries programme
J. Vernon Henderson, Tanner Regan, and Anthony J. Venables (2016) Building the city: sunk capital, sequencing, and institutional frictions. World Bank, Washington
Building the city: sunk capital, sequencing, and institutional frictions