Landmark Incentives

by Sandy Ikeda

The other day I was lecturing to my students about externalities and the Coase Theorem.  One of the examples I used came directly from the our textbook – Heyne, Boettke, & Prychitko’s The Economic Way of Thinking.  It asks what would happen if you tried to declare a large tree in your neighbor’s backyard a landmark in order to prevent her from chopping it down and depriving you of the valuable shade it casts into your backyard.  The answer is that it gives her an incentive to chop the tree down much sooner, before the landmarking can go through.

It turns out that that’s exactly what some landlords in New York have been doing to avoid the severe building constraints imposed by the city’s Landmarks Preservation Law.  Of course they use jackhammers instead of chain saws, but the principle is the same.  According to this front-page article in today’s (Saturday 29 November) The New York Times:

Hours before the sun came up on a cool October morning in 2006, people living near the Dakota Stables on the Upper West Side were suddenly awakened by the sound of a jackhammer.  Soon word spread that a demolition crew was hacking away at the brick cornices of the stables, an 1894 Romanesque Revival building, on Amsterdam Avenue at 77th Street, that once housed horses and carriages but had long served as a parking garage.  In just four days the New York City Landmarks Preservation Commission was to hold a public hearing on pleas dating back 20 years to designate the low-rise building, with its round-arched windows and serpentine ornamentation, as a historic landmark.

(Hat tip to “The Volokh Conspiracy” via Mario Rizzo.)

Now, regulations and private exchanges both have unintended consequences.  The difference is that the latter represent opportunities that when exploited tend to create value (e.g., dirty air and air conditioners, noisy engines and mufflers, fast-food and gyms), whereas the former tend to frustrate the intentions of those who support the regulation (e.g., rent control and housing shortages, minimum wages and unemployment, and industrial bailouts and, well, more industrial bailouts.)

Anyway, about half the class chose not to attend that particular lecture, thereby depriving themselves of much wisdom.  It was the day before the Thanksgiving break, however, so I guess they too were just following their incentives.