Assume that people living in the city enjoy farmland benefits, but the landowner does not...
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Assume that people living in the city enjoy farmland benefits, but the landowner does not consider those benefits ( rupees) generated by the open-space amenity. Therefore, this market failure makes the city suboptimally large. Suppose that the optimal city edge is indeed x = 40 and the developers bid rent curve following the imposition of a tax is r(x) = 100 x. The current edge of the city is xo = 80. What should the tax on developed land rent charged to the landowner be for the city to achieve its optimal size?
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