Zoning and Property Rights: Chinese Agriculture

1. Introduction

Chapter One Introduction The Pigovian arguments for planning Zoning is well-known as a key instrument in planning regulation which is environmental regulation in its broadest sense. Even planning systems without explicit zoning regulations have implicit elements of zoning1 which is understood broadly in this book as government delineation and/or restrictions of rights over land within certain spatial confines. Planning in terms of economic theorization is normally justified by the Pigovian welfare economics theses of market failure (Pigou 1932), notably ‘externalities' (Samuelson 1958) and by extension,‘public goods' (Samuelson 1955). This Pigovian pro-intervention tradition is well received by planning practitioners and by Commonwealth academics2 involved in the education of planners. An externality arises where the costs suffered by a party due to the activities (production or consumption) of another are uncompensated or, conversely, where the benefits produced by the activities of one party are captured by another free of charge. The former is called a negative externality and the latter, a positive externality. Such uncompensated costs and benefits arise, and thus the market ‘fails' to attain Paretian efficiency, because the profit mechanism only works according to private costs and benefits. Such uncompensated costs and benefits become therefore social costs borne or social benefits reaped by third parties. Figure 1.1 depicts graphically the externalities produced by the production activities for a product X. The demand curve D represents the social marginal valuation of the consumers for X. The supply curve Smreflects the private marginal cost incurred in producing X. The unregulated market equilibrium is Em with the corresponding output being ~ and market price being Pm. 丸， however,does not take account of the social cost or social benefit 2 Zoning and Property Rights: A Hong Kong Case Study which should bc added on or deduced (vertically)born the Sm curve to rcnect the net social marginal cost, which is represented by 5n in the case of a pure negative externality with X having no social benefit (i.e. 5n is irrelevant) or 5n in the case of a pure positive externality with X having no social cost (i.e. 5~ is irrelevant). Respectively, the socially efficient equilibria are En and Eo' which the unregulated market would not attain. Comparing with En and- 丸， Em incurs inefficiency respectively for producing too much by the amount ~-~ at too low a price by Pn-Pmand too litt1e by the amount ~-Q， at too high a price by Pm-Po. The standard Pigovian solution would be a tax which brings 5mup to 5n for a pure negative externality or a subsidy (a negative tax) which brings 5mdown to 50 for a pure positive externality so that the socially efficient equilibrium En or E~ can be attained. Alternatively, a maximum quota of ~ and a minimum quota of 已 would be set for the negative and positive externalities. The Pigovian tradition typically interprets ‘pollution' as a kind of negative externality. Price of X pn pm Pp Output Quantity of )< Qn Q" Qp Fig. 1.1 Positive and Negative Externalities Although the Pigovian policy solutions involve the imposition of extra constraints for market operation, they do not direct1y interfere with the spatial and internal aspects of production. While the planner may tend to acknowledge the existence of externalities and accept the need to tackle them, he or she is seldom given the authority to impose a pollution tax, grant an incentive subsidy or set a production quota. The planner, however, does possess a host of land use intervention tools which regulate the location, dimension, intensity, time, duration and process of the production or reception of externalities. Examples include land use restrictions, planning conditions, bui1ding codes, environmental standards, etc. Often such regulations are adopted and enforced by a zoning plan. Introduction 3 Public goods are those goods or services which the free market is believed to be inherently disinterested in providing an adequate amount, if any at all. The reason is that for certain types of goods, consumption is ‘joint' and not exclusive. For instance, consumption of a movie is joint among viewers. The marginal cost of showing a movie to one more person is zero (up to the point of full seating). In such a situation, efficient resource allocation requires zero pricing and this deters the private sector. Besides, consumers would pretend that they have no demand for the goods in the hope that they could ‘free ride' on the payment by other consumers. In the case of exclusive consumption, however, consumers will not conceal their real preferences as they would be unable to obtain the goods. The classic economic example of the free ride problem is national defence. While all citizens in a polity require collective security services, individual citizens when asked to pay for military expenditure on a voluntary basis may well deny their needs in the expectation that someone else would pay for the service. Hence there is a need for government as a coercive monopoly ofviolence to compel payment through the tax system and allocate resources to national defence. The same argument could be applied to many community services like education and open space. Technically, public goods are jointly consumed, i.e. the aggregate demand curve for a public good is the vertical summation of individual demand curves (Figure 1.2). This implies joint consumption. However, the aggregate demand curve for a private good is obtained by horizontal summation, implying exclusive consumption (Figure 1.3). In many instances of planning intervention, goods which are private in nature - consumption of which is exclusive - are nevertheless treated by policy as if they are public goods. That is to say, payment for them is not directly, overtly or fully borne by the consumer through the private market but by government which in turn compels payment largely from the tax paying public through a fiscal regime. The typical examples in planning are: public housing; public open space and roads in general (largely borne by the tax paying public who pay the difference between the opportunity costs of road space and expenses, such as licence fees, registration fees, etc. recovered from vehicle users). These goods are either purely private or at least t Theoretical origins of planning as an interventionist endeavour From the historical perspective, the post-World War 11 rise of planning as a profession dealing with the techniques, activities, procedures and management of government interventions in spatial and socio-eçonomic affairs in 4 Zoning and Property Rights: A Hong Kong Case Study Value Preference for A X+Y Y X Da + Db = Aggregate Demand Curve for a Public Good Y of individuals a and b Db Da Ouantity of A Fig.1.2 Aggregate Oemand Curve for a Public Good Value Preference for B Da Da + Db = Aggregate Demand Curve for a Private Good B of individuals a and b Db a b - ,- Ouantity of B a+o Fig. 1.3 Aggregate Oemand Curve for a Private Good terms of the issues of externalities and public goods was heavily influenced by European pre-war economic thought and political experience. It is noteworthy, for example, that when Leninist-Stalinist central economic planning and Nazi totalitarian ‘N ational Socialism' were being pursued at all costs in the 1920s and 1930s, the Cambridge Professors of Economics, A.C. Pigou and J.M. Keynes were writing their famous interventionist treatises that revolutionized the libertarian neo-classical tradition. Pigou's The Economics 01'股份作(1 932) provides justifìcations for government intervention on resource Introduction 5 allocation efficiency grounds, whereas Keynes's The General Theory (1 936) offers ‘short-run' solutions to macro-economic problems of unemployment and stagnation. Political sentiments leading to the Dawes plan providing loans to the Weimer Republic and the New Deal in the USA were surely conducive to the intellectual acceptance of such free world versions of market reformation as an alternative to the Marxist market displacement model. Post-war economic recovery in the West and the associated suburbanization process provided fertile ground for putting into practice the interventionist thoughts of Pigou and Keynes. In the developing world, there was also a similar drive towards intervention. Some countries, like the People's Republic of China, imported the Soviet planning model en bloc. Others, leaning towards the West, did almost the same under the guise of Pigovian and Keynesian economic management. In the 1950s and 1960s, the planning paradigm was determinedly interventionist. Against this intellectual ethos, Frederick Von Hayek's polemic and libertarian attack in 防 Road 的 Serfdom (1946) and T加 Constitution 0/ Liberty (1 960) was an odd and lonely voice. Similarly, Ronald Coase's 'The Problem o/Social Cost' (1960) that disputed the Pigovian approach had little audience among planners in the British Commonwealth planning regimes. The rise of ‘property rights economics' in America, ensuing from Ronald H. Coase's seminal papers on transaction costs, particularly 'The Nature of the Firm' (1 937) and ‘The Problem of Social Cost' (1 960), has led to the growth of anti-interventionist libertarian thinking in the field of economics in North America and Western Europe. As opposed to the Pigovian ‘market failure' concept, notions like ‘public failure' (Wolf 1987),‘non-market failure' and ‘staatsversagen' (the German idea of state failure) Oanicke 1990) have emerged. In the field of environmental planning in particular, the concept of ‘market environmentalism' (Kwong 1990) predicated on ‘liberalization', ‘de-regulation',‘privatization', and ‘user charges', has created a new intellectual tradition competing with the Pigovian school. The demise of planned economies with the collapse of the Soviet Union and other communist regimes in Eastern Europe and success of the ‘Chicago School' in capturing Nobel Prizes in economics have also produced a political and academic environment which fosters Objectives Within the .Coasian paradigm of transaction costs and Steven N.S. Cheung's interpretation of this concept (1 990) that social institutions (including the government) are outcomes of public choice to reduce transaction costs, this book attempts to contribute to the existing intellectual discourse on zoning. This agenda is to be achieved by establishing a holistic property rights framework 6 Zoning and PropertγRights: A Hong Kong Case Study Within this framework, the economic literature on zoning could be critically reviewed and the dual character of zoning could be tested, on the basis of the following hypotheses: (a) zoning as a government means to assign exclusive property rights can constrain rent dissipation, which would occur under a system of common property rights under competition, and at the same time facilitate market transactions, and hence maximize property value; (b) zoning as a government planning intervention instrument would attenuate3 private property rights over the best possible (most valuable) social uses of land in the following senses: (i) removal and/or subtraction of assigned rights over land entitlement and/or uses (whether such uses are specified or left unspecified initially) by the government act of downzoning, and other development rights (like requirements for joint development, restrictions on subdivision - with/without taking, eminent domain, compulsory resumption/ acquisition; etc.) made under the so-called process of ‘forward planning '; and (ii) supersedure of private decision about the transfer, change or resolution of conflict of rights over land entitlement and/or uses (whether such uses are specified or left unspecified initially) by government decision made under the so-called process of ‘development control', in other words, private formation of contracts are superseded by government edicts. This book is an interdisciplinary endeavour, drawing intellectual insights from the fields of economics, planning and law. Coasian transaction costsbased property rights analysis provides the synthesis of various concepts of zoning from various disciplines. A glossary of terms is given in Appendix 1. Organization and methodology Establishing a coherent prope前y rights framework This book seeks to achieve the objectives mentioned above by establishing a coherent framework of zoning using conventional property rights paradigms in Chapter 2. This framework provides the context against which the literature on economics of zoning is reviewed in Chapter 3. The framework presented in Chapter 2 should be able to provide a more meaningful interpretation and evaluation of the zoning or using concept of Coasian ideas. However, it avoids an extreme interpretation of the Coasian paradigm as an apology against all government regulations, there being some key differences in ideas between Coase and the Coasians, which are revealed in Chapter 3. In addition, Introduction 7 it also closes some gaps in the Coase theorization, notably the neglect of ‘extension' as an ontological attribute of land. Although the Coasian approach is positivist, some followers of Coase have formulated normative ideas which favour deregulation. In the economic discourse on zoning, while the Pigovian scholars like Baumol (1972), Crone (1 983), and Fisher and Peterson (1 987) continue to return analytical and empirical suppon for their theoretical constructs, Coasian researchers like Crecine (1 967), Siegan (1970, 1972), Maser, Riker and Rosett (1 977), Fischel (1 978, 1979, 1980), Mark and Golberg (1 981), Anderson (1 982), and Benson (1 984) provide direct1y opposite views with empirical evidence. These views are well received4 by some real estate researchers like Harris and Douglas Moore (1 984). Zoning is considered to be either undesirable or useless in improving effìciency . By implication, its abolition, or ‘dezoning' or ‘non-zoning' (Siegan 1970) would bring greater effìciency. The propensity to condemn zoning categorically raises a number of fundamental questions. To begin with, why does society choose this institution戶 Besides, how does this institution relate to Coase's presupposition ofthe existence of the market or, more generally, a private property rights system in his analysis of the trade of pollution rights? What is the position of this approach towards the 'non-zoning' in Houston (Siegan 1970), and the British planning system, which is said to be without zoning other than the British ‘enterprise zones'6 or the Chinese ‘special economic zones?'7 These questions are addressed in Chapter 2 which seeks to clari有T the property rights nature of zoning. As mentioned above, the focus of property rights analysis is placed upon transaction costs. The conceptual framework presented here uses the most imponant version of the Coase Theorem to explain the dual character of zoning in terms of (a) the transformation of a state of extreme common property rights or anarchy to a state of exclusive property rights by assigning cenain rights and (b) the attenuation of pre-existing rights over land. These concepts explain the institutional persistence of zoning. A series of conceptual drawings8 are used to help explain the evolution of the concept of zoning from anarchy to a situation with government planning. The historical transition of the land pattern of Junction Road area, Ko 8 Zoning and Prope 門γRights: A Hong Kong Case Study government spatial regulation of land are understood as different forms of zoning. Thus, the ordinary meaning of zoning as a government planning and regulatory measure becomes a special case. The broad concept of transaction costs proposed by Demsetz is applied in order to encompass different modes of property rights. There is an argument claiming that initial assignment of exclusive property rights over land by zoning is superior to the situation of common property rights, provided always that the transaction costs involved are not prohibitive. This argument is subject to analytical and empirical scrutiny here. The theoretical focus is that exclusive property rights can constrain rent dissipation. The economic rationale of subsequent attenuation is conceivable within the Coasian concept of the nature of the fìrm as an institution that supersedes the market (Coase 1937). Whereas a private fìrm is always effìcient due to competition,lO government as a special kind of fìrm or a ‘super-fìrm'll may have ‘ineffìcient' zoning policies due to political constraints. Whether zoning as a means used by government planners to attenuate private property rights over the most valuable use of land is effìcient and hence ‘desirable' in terms of maximization of social wealth, subject to the constraint of transaction costs, is a question that has no a priori answer. It is contingent upon whether the increase in transaction costs for private landusers due to forward planning and development control are sufficiently offset by (a) the savings in the transaction costs of private solution over the transfer, change or conflict of rights over land entitlements and/or uses, and (b) the enlargement of the land market. In other words, it is more of an empirical, cost-benefìt question rather than an apriori one. Where planning could reduce transaction costs, government as a kind of fìrm justifìably supersedes the market in dealing with changes ofland entitlements and uses. Two groups of empirical hypotheses are derived for testing each character of zoning. Chapter 2 also presents a succinct account ofa market failure interventionist justifìcation for zoning which is juxtaposed with the property rights explanation. It also gives the confìguration of the zoning regime of Hong Kong in terms of the property rights framework to provide the context for the literature review in Chapter 3, and the empirical tests in Chapters 4 and 5. H Literature review The literature review (Lai 1994)12 is a discourse about a host of analytical and empirical journal articles, monographs and books. Following the standard academic practice in the review of economic literature, an ‘anachronic' 10 Zoning and Property Rights: AHong Kong Case Studγ (structural) (Leslie 1970) and ‘modernist' approach is adopted to inquire into the ideas of two leading economic paradigms (Kuhn 1962) of zoning. The methodological issues of this approach13 and a brief introduction to the two ‘paradigms' or ‘schools' of thought about zoning is given below. The name ‘school' or ‘tradition' properly applies to both groups of scholars adopting Pigovian and Coasian paradigms by virtue of their methodology and systematic treatment of the subject. The Pigovian paradigm refers to the articulation of the concept of ‘external effects' (‘neighbourhood effects' or ‘externalities'). As mentioned above, an externality is a kind of market failure. T0 reiterate, it arises where the costs suffered by a party due to the activities of another is uncompensated or, conversely, where the benefits produced by one party are captured by another without compensation. The former is called a negative externality and the latter a positive one. The Pigovian tradition typically describes pollution as a kind of negative externality. Such uncompensated costs and benefits would create economic inefficiency. The reason held by Pigovian economists is that as the market only responds to private costs and benefits, the market would fail to equate marginal value and marginal social costs, which is required as a condition for Paretian economic efficiency. They therefore argue that the state or government should intervene in the market so as to correct the inefficiency. While Pigou proposes the use of a tax (and hence the 'Pigovian tax') in the case of pollution, Buchanan and Tullock (1 975) in their review of the Pigovian pollution tax scheme suggest that physical controls like quota are more suitable in some situations. The Pigovians' theorization on zoning follows this opinion. Zoning is interpreted as a kind of physical control which corrects market failure ofexternality. In fact, another welfare economic concept of market failure, viz public good (Samuelson 19好)， can also be applied to justify land use planning. However, this has rarely been rigorously attempted.14 The Coasian paradigm15 begins with Coase's attack on the concept of social cost in his 1960 paper. He illustrates that ‘harmful effects' in land use are actually reciprocal16 in terms of the parties' rights to use land. Furthermore, they can trade their rights until they reach a solution which entails joint and individual wealth max Introduction 11 Harold Demsetz (1967) has extended the concept of transaction costs and refers it to all costs other than those in a Robinson Crusoe (one-person) world.20 Zoning as a means to constrain rent dissipation T0 test the social contribution ofzoning as a means to assign exclusive property rights, the case ofHong Kong's Marine Fish Culture Zone (MFCZ) Ordinance, which establishes and assigns certain exclusive property rights over ocean 血泊， normally over-exploited as a common property, is investigated in Chapter 4 (Lai 1992, 1993a, 1993b).21 The empirical hypotheses are as follows: (i) the fall in rent (fìsh output) as a result of deteriorating (water) quality in MFCZ is less than that in common property areas (in-shore fìshing grounds) due to dissipation in the latter; (ii) the capital kept (fìsh reared) in more polluted zones (MFCZ) are lower in return (prices) than those in less polluted zones (MFCZ) or those kept (captured) in common property areas (0年shore fìshing grounds); (iii) the rent (queues for licences) for the more polluted zones (MFCZ) are smaller (shorter) than those for less polluted zones (扎1FCZ); and (iv) more pollution-resistant capital (品的 are kept in the more polluted zones (MFCZ) than in the less polluted ones. Economics as a science of human choice has a high level generalization: what is applicable to apples22 and oranges, wheat and cattle,23 bees24 and fìsh is also applicable to all other scarce goods. Maximization behaviour is viewed not only as applicable to human beings, but also for animals (Hirshleifer 1977). Rules of competition for them m呵， however, vary. In the case of land resources, zoning is a means to constrain competition. Marine zoning is investigated because in the real world, there are seldom cases of extreme common property rights over land property. The classic common property rights analysis commences with the subject of ocean fìsh. They are, however, analytical and conjectural (Gordon 1954; Scott 1955; Turvey 1964; Fullenbaum et al. 1972; Gould 1972; Smith 1972; Lawson 1984). Subsequent empirical analysis uses oysters (Angello and Donnelley 197步) as the test object. It should be pointed out that marine fìsh culture of Hong Kong has been neglected by property rights experts who advocate property rights assignment over common property.25 To evaluate zoning in terms of property rights delineation in land is consistent with the more general public choice thesis which claims that government is the ultimate protector of the property rights of its subjects (Lai 1987).26 Property rights over land is one of the most important property rights. Zoning cannot be discussed meaningfully in economic terms without reference to its relationship to property rights over land. 12 Zoning and Property Rights: A Hong Kong Case Study Zoning as a means to attenuate private property rights To test the impacts of zoning as a means to attenuate private property rights, some aspects of Hong Kong's zoning practice are investigated in Chapter 5. The testable hypotheses are as follows: (i) comprehensive development areas (CDA)27 (and/or areas with Master Layout Plans) have less (i.e. smaller percentages of) environmental complaints than areas outside CDA (testing impact on externalities); (ii) CDA have smaller rent variances than areas outside CDA (testing impact on externalities); (iii) CDA development under unitary ownership is more effìcient than under multiple ownership. (iv) downzoning (reduction in plot ratio) has created a signifìcant rise in the expected value of residential development (G.F.A.) (testing impact on externalities); (v) planning areas with more (greater percentages of) building plans (numbersIG .F.A.) vetted under the development control (statutory planning application) process tend to have less (smaller percentages of) environmental complaints than districts with less (testing impact on externalities); (vi) the urban-rural rent gradients have become more elastic (less steep) with the inception of statutory planning in the New Territories (resting impact on market enlargement); and (vii)in the New Territories, the volume of land transactions have signifìcantly increased with the inception of statutorγplanning (testing impact on market enlargement). The fìrst hypothesis, being more general, is tested by case studies whereas the other more specifìc hypotheses are tested by more formal analyses. While categorical judgements can be made for the tests in the preceding chapter, it is not argued that the test results in Chapter 5 are in the same sense conclusive of the general nature of zoning interpreted as a means to attenuate private property rights. As it is argued in Chapter 2 and reiterated in Chapter 3, this position is inevitable as questions on this aspect of zoning are case-specifìc. What is more fundamental is that these hypotheses raise meaningful questions for the policy makers about the zoning system of Hong Kong. Conclusion Chapter 6 discusses main methodological issues and makes recommendations for policy development and further research for Hong Kong. The discussion will be based on the implications of the results from empirical tests of rights Introduction 13 assignment and attenuation in the preceding chapters. There is also an epilogue about the Coasian view of zoning. The methodology adopted in carrying out the empirical tests in Chapters 4 and 5 is one of the Popperian falsification approach. This approach would only expect that the hypothesis asserted is either ‘falsified' or ‘not falsified' but would never claim that the hypothesis is ‘confirmed\If a hypothesis is falsifi吐， then there are prima focie grounds to reject it. If it is not falsified, then there are prima facie grounds to accept it. In either case, there is no claim that alternative explanation is not possible. However, the fact that there could be competing explanations does not alter the interpretation of the factual results within the asserted hypothesis. It is up to the proponents of the competing explanation to prove their case or to show that their case is ‘not falsifiable' by facts. An example serves to illustrate this point. If the hypothesis is that ‘Peter will not come if it rains tomorrow', then this hypothesis ‘is falsified' when Peter does come when it really rains. This result does not preclude the explanation that Peter comes only because he can find an umbrella. Notes 1. The apparent lack of zoning in the United Kingdom is dealt with in Chapter 2. 2. See various articles in Town Planning Review 56, No. 4, 1985. 3. Unless otherwise specified, this term is used throughout the book in a positive sense without passing normative judgements regarding its desirability. 4. For a general and critical review of the American zoning system, see Dickson, A. ‘A Critical Review on American Zoning System.' Land Economics 62, No. 4 (November 1986): 201-230. 多 Fischel asks a similar question, but he presupposes that zoning is inherently inefficient and asks the question 'if zoning is so inefficient, why does it persist'. See Fischel, Wi1liam A. ‘A Property Rights Approach to Municipal Zoning.' Land Economics 54 (February 1978), p. 65. It is considered that Fischel's answer in attempting to free ride on other people's property is too restrictive. 6. These zones are designated under s.32, para. 1 of the United Kingdom Local Government Planning and LandAct 1980. 7. These zones are established under the Guangdong Province Special Economic Zones Regulations, August, 1980 of the People's Republic of China. 8. For the use of conceptual drawing in economic literature, see Coase R.H. 'The Nature of the Firm.' Economica n.s. 4 (November 1937): 348 (reprint in Readings in Price Theo吵， published for the American Economic Association, R.D. lrwis, 1952), and Yang, Xiaobai et al. 'A Microeconomic Mechanism for Economic Growth.' Journal ofPolitical Economy 99 (1 991): 470. Diagramatic illustrations of economic analysis ofland use zoning are best summarized in Heikkila, Eric ‘Using Simple Diagrams to Illustrate the Economics of Land Use Zoning.' Journal of Planning Education and Research 8 (No. 3, 1989): 209-214. See Misczynski, 14 Zoning and Property Rights: A Hong Kong Case Study Dean J. ‘Land-Use Controls and Property Values.' in Hagman, Donald G. and Miscz)叫ci， Dean J. ed. Windfolls for Wipeouts: land value capture and compensation. Chapter 多 (pp. 75-109) Washington: Planners Press, 1978; and Fischel, William A. ‘A Property Rights Approach to Municipal Zoning.' Land Economics 54 (February 1978): 64-81 , and ‘Equity and Efficiency Aspects of Zoning Reform.' Public Policy 27 (No. 3, 1979): 301-331. 9. See Note 30, Chapter 3. 10. Coase argues that in a competitive system, there would be 冶n optimum ofplanning'. See Coase, Ronald H.,‘The Institutional Structure ofProduction.' Sweden: Royal Swedish Academy of Science, 1991, p. 7. 11. See Coase, R.H. 1960, op. cit., p. 17, also in Coase, R.H. 1988 op. cit., p. 117. 12. L缸， Lawrence W.C. ‘The Economics of Land Use Zoning: A Literature Review and Analysis of the Work ofCoase.' Town Planning Review 65 (No. 1, 1994): 7798 . The published version indudes all the contents of Chapter 2 and the Pigovian model described in Chapter 1. 13. There are three common approaches in reviewing more than one piece ofliterature. The first method is to investigate texts one after another, an arrangement commonly used in encydopaedias such as the International Encyclopaedia 0/the Social Sciences (1 969). The second method is a chronological review ofeach author's contribution. The third and the approach adopted here is 這n anachronic (structural) study of vanous ‘lines of thought',‘schools of thought' or ‘traditions\Unlike the previous two methods, this approach does not stress individual texts or authors, but their significance in a body of knowledge that merits a holistic treatment as a discipline on ItS own. 14. For an synoptic account, see Lai, L.W.C., 'The Role of Land Use Planning - An Economic Exposition.' The Hong Kong Surveyor 3 (No. 2, Fall, 1987) p. 6 and ‘Some Fallacies of Incompatible Land Uses - A Libertarian Economic Exposition of the Issues of Land Use Zoning.' The Hong Kong Surveyor 6 (No. 2, Fall, 1990) p. 18. For informal justifications of planning in general, see Stewart, M. ‘Markets, Choice and Urban Planning.' Town Planning Review 44 (1 973): 203-220, Oxley, M.J. ‘Economic theory and Urban Planning.' Environment and PlanningA7 (1975): 497-508, Moore. T. ‘Why Allow Planners To Do What They Do? A justification from economic theory.' American Institute 0/Planners Journal 44 (1 978): 387398 , Klosterman, R.E. ‘Arguments For and Against Planning. Introduction 15 and a Theory of Zoning,' Progress in Planning: Recent Research in Urban and Regional Planning, Pergamon Press, UK, 48 (No. 3, 1997b): 161-246. 15. Victor P. Goldberg reminds economists that Coase's idea of the reciprocal nature of costs ‘bear a striking similarity' to that of John R. Commons and John M. Clark's a century ago. See Goldberg Victor P. ‘Toward an Expanded Economic TheoIγof Contract.' Journal o[ Economic Issu臼 (March 1976): 45-61; and ‘Commons, Clark, and the Emerging Post-Coasian Law and Economics.' Journal o[Economic Issues (December 1976): 877一893. 16. See Coase, R.H. 'The Problem of Social Cost' The Journal o[Law and Economics (October 1960): 好， also in The Firrn, the Mar.如何nd the Law. Chicago: University of Chicago Press, 1988, p. 120. Externalities are effects involuntarily imposed/ conferred on a third party to a contract. They are hence also known as ‘third party effects'. A discussion of externalities or social cost therefore involve at least three parties. The example of the conf1ict of interest between the cattle keeper and wheat farmer (say respectively party A and party B) in Coase's 1960 paper in fact involves four parties instead of just two. The four parties create a situation where externalities are bilateral. We can imagine that party A has a contract(s) with party C, the consumer of beef or dairy products, whereas B have a contract (s) with party D, the consumer of f1our. Party A is a third p叮叮 to the contract between party B and party D. Party B is a third p叮叮 to the contract between party A and Party C. If the property rights are so assigned that party B can exclude party A's animals from grazing on party B's land, as in the law of trespassing, it can be argued that the contract between parties B and D causes a negative externality affecting A. If the property rights are so defìned that pa叮 B cannot exclude p叮叮 A's animals, as in the case of some societies where cattle are regarded as sacred, party B suffers from the contract between parties A and C. Coase discusses a situation where party A and party B in such a bilateral situation are free to negotiate or re-negotiate their rights and liabilities by an additional contract. This additional contract ‘internalis郎， the externalities imposed on the original third parties. See Lai (1997a), ibid, note 14 above. 17. See Coase, R.H. 1960, op. cit., p. 44, also in Coase, R.H. 1988 op. cit., p. 155. 18. See Coase, R.H. 1960, op. cit., p. 2, also in Coase, R.H. 1988 op. cit., p. 97. 19. See Coase, 16 Zoning and PropertγRights: A Hong Kong Case Study 24. See Cheung, Steven N.S. 1973, op. cit. 2 筠 5. In Kwon 時 g， J 知 o Ann' 冶 s Mar，如的 tE 品 n 仰仰 ro 仰 m 仰 F 仰? Kong: Chinese University Press, 1990, for instance, marine fìsh culture is surprisingly omitted. 26. Lai, Lawrence W.C. ‘Democracy and Political Protection of Proper可Rights\ Unpublished M.Soc.Sc. (Economics) dissertation, Department of Economics, University ofHong Kong, 1987. 27. The term ‘comprehensive development area' (CDA) used in this book is not restricted to those lands statutorily zoned as such in ‘Outline Zoning Plans' but also refers to those ‘estate' type housing development whether or not they are governed by master layout plans. ...