Zoning a Cross‐Border City

Abstract

This paper investigates zoning in a cross‐border linear city that consists of two bordering towns. In each town, a local regulator has a say in the location of the local firm. We find that local regulators may use zoning strategically. The incentive to gain consumers from the other town, or not to lose local consumers, may push regulators to approve only locations for firms close enough to the frontier. When zoning is costly an asymmetric equilibrium may emerge: only one regulator resorts to zoning. In the case of towns of different sizes, the regulator of the larger town is the only one that zones in an asymmetric equilibrium.