The NIMBY problem

Abstract

Nimbyism is widely thought to arise from an inherent tradeoff between localism and efficiency in government: because many development projects have spatially concentrated costs and diffuse benefits, local residents naturally oppose proposed projects. But why cannot project developers (with large potential profits) compensate local residents? We argue that local regulatory institutions effectively require developers to expend resources that cannot be used to compensate residents. Not being compensated for local costs, residents therefore oppose development. Using a formal model, we show that when these transaction costs are high, voters consistently oppose development regardless of compensation from developers. But when transaction costs are low, developers provide compensation to residents and local support for development increases. We conclude that nimbyism arises from a bargaining problem between developers and local residents, not the relationship between local decision-making and the spatial structure of costs and benefits. We suggest policy reforms implied by this theory.

The Public Meeting Paradox: How NIMBY-Dominated Public Meetings Can Enable New Housing

“…Despite sky-rocketing housing prices and chronic shortages, developers proposing new housing projects and residents are at odds, even in liberal cities (Brouwer andTrounstine 2024; Ornstein 2023). Much like the model of the strategic interaction between developers and local residents in Foster and Warren (2022), we formalize the incentives of developers, proposing a housing project of variable size, and the citizens who may be opposed to such development. We focus, however, on the institution of a local meeting, even an unrepresentative one, as it can give the developer sufficient information about the opponent citizens to efficiently compromise.…”

Zone defense: Why liberal cities build too few homes

“…What prevents developers from striking a Coaseian bargain with existing residents, redistributing the surplus from new development and making everyone better off? Foster and Warren (2022) argue that transaction costs reduce the likelihood of these Pareto-improving bargains. Opponents of new development create costly project-approval processes, which diminish the amount of surplus available to compensate residents.…”

“…As Foster and Warren (2022) note, one route to ameliorating this undersupply of housing is reduce transaction costs and make it easier for developers to compensate residents for congestion externalities. Unfortunately, the model presented here suggests that these sorts of solutions are most difficult to achieve in the very places where they would do the most good: tightly zoned liberal cities.…”

“…Although the marginal gains from new development is higher in these cities, the number of residents necessary to compensate false( n z false) grows faster than these marginal gains. This implies that, in the presence of the sort of transaction costs described by Foster and Warren (2022), it will be more difficult to facilitate bargains that increase the housing stock in liberal cities than in conservative cities.…”