Land Regulations and the Optimal Distribution of Cities

Despite the large impact institutions have on the allocation of population, it remains an open question which institutions produce an efficient allocation of people across cities. Due to agglomeration, differences in amenities, and congestion, cities experience decreasing returns to population within cities (intensive margin) and across cities (extensive margin). This paper considers three institutional designs with different abilities or incentives to set land regulations. The main results imply that land regulations can be a part of an efficient institutional design and inefficient land regulations distort the types of cities, in terms of production and quality of life amenities, that are created. These insights are used to structurally estimate amenities across cities. The estimates, consistent with the model, find that cities with more production amenities have fewer land regulations (e.g., Houston, TX) and cities with more quality of life amenities have more land regulations (e.g., Portland, OR)