ECONOMICS UNIQUENESS

FINANCIAL MECHANISMS FOR HISTORIC CITY ■ 219
transport pollution, and congestion. But particularly important in this kind of
heritage project is the improvement in the quality of life, livability, attractiveness,
and reduction of urban poverty, and subsequently the possibility to stimulate a
sense of urban belonging. As Lee observes, the main toll for living in blighted
urban areas is paid by the most destitute of urban households in terms of greater
exposure to crime, poorer residential quality, higher prices of consumer goods,
and inferior provision of education and health services (Lee 1996). Moreover, as
in the case of the area of al-Azhar, situated in the old city in Cairo, the inhabitants
of urban brownfi elds are oft en new migrants with limited fi nancial means, which
hinders the maintenance and conservation of the old fabric of the city (Sedky
2009). Th e private sector, however, also generally fails in this case to capture and
internalize the collective benefi ts related to environmental and cultural heritage.
Experience shows that the development of both cultural and natural urban
brownfi elds must generate a cash fl ow stream for the private sector and be linked
with the sale and commercial operation of the redevelopment property. Private
actors will examine their revenue and investments in relation to their corporate
social responsibility, mainly as a marketing strategy, but they are only likely to do
so with investments that have a high fi nancial rate of return.
Given the public good characteristics of brownfi eld investments, the economic
justifi cation for public-sector investment is well established, since the private sector
would provide suboptimal brownfi eld redevelopment and under provision of
investments due to the presence of risks and externalities, and sometimes due to
coordination problems among private agents (Isham and Kaufmann 1999). However,
the redevelopment of cultural and natural heritage is a form of hybrid public
good investment, so it may be unreasonable to expect the public sector to be the
sole investor in and provider of urban brownfi eld redevelopment (Dasgupta and
Serageldin 2000).
Th ere is disagreement about the best ways to fi nance urban brownfi eld projects,
including regarding the allocation of the public investments. Of particular
concern is that public investments can crowd out private investments; public
and private investments can coexist, but the balance between the two will vary
depending on the project scheme and context. For instance, the authors of an
analysis of Indian public investments observe that if the investment of the public
sector is through market borrowing rather than defi cit fi nancing, this leads to a
rationing of bank credit for the private developers and thus imposes crowding
out of the private investments (Pradhan et al. 1998). (See fi gure 8.3.)
Another distinctive eff ect in urban brownfi eld investments is associated
with public-sector institutions. An extensive study of 116 developing
countries, covering the period 1980–2006, analyzed how diff erent forms
of public investment may render diff erent eff ects, particularly in investments
for urban heritage brownfi elds that have tangible and intangible