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Market-Based Exchanges of Rights within a System of Performance Zoning


John R. Ottensmann
School of Public and Environmental Affairs
Indiana University
Indianapolis, Indiana 46202



Performance zoning provides a context within which market forces can be allowed to provide greater flexibility. The rights created within a system of performance zoning could be exchanged among property owners in two situations: With performance standards intended to protect nearby landowners, those landowners could waive their rights to that protection. With performance standards based upon capacity limits, landowners could transfer rights related to development and those capacity limits to other landowners. Such transfers of rights in a market context could increase the flexibility and economic efficiency of land use regulation.




Traditional zoning has been frequently criticized for its lack of flexibility and for the economic inefficiencies introduced into the land market. Proposals have been offered to radically alter existing systems of land use control to allow market forces to play a greater role in determining land use. But the question arises as to whether these proposals sacrifice the achievement of the public objectives sought in a system of land use control.

Performance zoning represents an alternative to traditional zoning. It provides greater flexibility by requiring that any development meet specified performance standards, rather than meeting detailed requirements as to allowed uses and the characteristics of those uses. The flexibility allowed by performance zoning should allow greater opportunity for market forces to affect land use and thus provide for greater economic efficiency.

Within a system of performance zoning, responsiveness to market forces can be further increased by allowing market exchanges of certain of the rights created. This paper proposes that such market-based exchanges of rights could be allowed while preserving the public objectives sought in a system of performance zoning.

The following two sections of this paper briefly review the problems with traditional zoning and the economic critique of zoning. The alternative of performance zoning and its fundamental characteristics are then described. The next section proposes how rights created by a system of performance zoning could be exchanged in two situations--rights involving the protection of nearby property owners and rights involving capacity constraints. Issues involved in the implementation of performance zoning and the establishment and operation of such an exchange system are then discussed.

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ISSN 1548-6036

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