Zoning, and planning more broadly, constitutes the rorschach test for observers of metropolitan areas. It is blamed for causing a host of problems and hailed as the solution to those problems. In such an environment, this chapter will not try to be definitive. In fact, much of my contribution will be to provide another way of viewing zoning, one that flows directly from the analysis of trading places. Specifically, we will see how zoning operates as a trade barrier and as an inducement to trade. Zoning also has similarities to taxation, and this metaphor is explored. We'll begin, though, in the traditional way, by considering how zoning operates as one way to control externalities.

EXTERNALITIES

Externalities are rampant in urban areas. This can be good, because of the increased productivity created by agglomeration economies of scale. It is also bad, as the intense interaction of people creates conflict.