Commercial Revitalization in Low‐Income Urban Communities: The Holdup Problem and Urban Development Policy
15 Pages Posted: 9 May 2014
Date Written: July 2014
A commercial development model, based on Fujita's monopolistic competition model of spatial agglomeration, addresses firms' decisions to enter urban communities. The model focuses on commercial developers and large department stores, and identifies a potential holdup problem in the commercial development market arising because developers incur costs before negotiating with anchor tenants over profit sharing; the holdup problem is more likely to occur in low‐income communities where the profitability of commercial projects is small. The model predicts that direct incentives to developers are preferred to general tax incentives for addressing this market failure.
JEL Classification: R58, H50, H76
Suggested Citation: Suggested Citation