ECONOMICS UNIQUENESS

36 ■ THE ECONOMICS OF UNIQUENESS
precedents elsewhere, it seems unlikely that local residents and outside developers
will manage to preserve on their own a suffi cient number of buildings with
architectural value.
Investment Irreversibility and Its Implications
In practice, the justifi cation for public intervention is even stronger than the discussion
above suggests. Th is is because the simple model used to motivate the
analyses in this chapter ignores uncertainty. Th e model assumes that the authorities
can determine in a precise way whether the socially optimal decision is to
preserve none, some, or all of the buildings with architectural value. But this may
be unclear before seeing how the private sector reacts to the project, how property
prices in the area evolve, and how sensitive those prices are to the heritage
value of the area. Th erefore, it may take years before there is clarity on whether all,
some, or none of the buildings with architectural value should have been saved
in the fi rst place.
With this uncertainty, mistakes are bound to happen, although some mistakes
are reversible while others are not. If an excessive number of buildings with architectural
value are preserved, and subsequently it turns out that those buildings do
not infl uence property prices in the area much, they can be replaced by modern
construction. Amending a regulation on preservation may be laborious, but it is
in principle feasible. On the other hand, aft er a building with architectural value
has been demolished and a bigger and more modern structure has taken its place,
going back in time may not be an option anymore. Th is is why, in a context of
irreversible investments, it is sensible to protect a greater number of buildings
with architectural value than would be optimal if there were certainty on how the
area will evolve.
In fi nancial terms, there is an option value in preserving buildings with important
architectural or historic features. Keeping them amounts to refraining from
making a profi t in the short term in the expectation of making an even bigger
profi t in the future. Demolishing them is relinquishing this option. Estimating
how much short-term gain should be foregone to exercise this option may, of
course, be diffi cult in practice. But it is clear that in a context of uncertainty, more
buildings with architectural value should be preserved than the discussion in the
previous section implies.
Design of Cultural Component
While the renovation of a landmark is typically led by a team with historical and
architectural expertise, the preservation and renovation of other buildings with