Is zoning a negative-sum game?

The economic purpose of zoning is to remedy market failure arising from externalities among urban land uses. By separating, excluding, and limiting dissimilar land uses, zoning should improve resource allocation and generate net social benefits. However, zoning is suboptimal. It suppresses gains from trade by restricting land uses that would generate net gains. Furthermore, even where zoning upholds an efficient land use pattern, large social costs can be imposed in implementation. These arise from rent-seeking efforts by landowners who try to capture the rents created by zoning. In the extreme, and sufficient conditions demonstrated are not very stringent, rent seeking dissipates so many of zoning's benefits that no zoning is shown to be more efficient. Where this occurs, zoning is a negative-sum game. Localities have policy options that would diminish the improvidence of zoning without leading to excessive congestion. These options are based on the notion that zoning rights are salable.