ECONOMICS UNIQUENESS

40 ■ THE ECONOMICS OF UNIQUENESS
them (see fi gure 2.3). If it provides incentives for their owners to undertake the
renovation on their own, it needs to spend T i + R i on each of them. However, these
savings simply refl ect a distributional issue. An urban upgrading project is typically
a source of windfall profi ts for those owning property in the area of intervention,
but unfortunately project preparation seldom devotes attention to who will
appropriate those profi ts. Th e basic principle underlying social safeguards implies
that those whose property is reclaimed should not be among the benefi ciaries.
Distributional Effects and Property Rights
Th e idea that investment projects and policy reforms can create winners and
losers is well understood in development economics. It has therefore become
common practice to supplement their preparation by analyses of their potential
distributional impacts. In the jargon of development economics, those analyses
are known as Poverty and Social Impact Assessments (or PSIAs). Th e discussion
of distributional issues has so far emphasized the diff erence between those whose
property is reclaimed for architectural preservation (or infrastructure upgrading)
and those who can fully enjoy the windfalls created by the project. However, there
is another potentially important distributional issue that needs to be considered,
and it concerns the diff erence between local residents as a group and outside
investors.
Social Impact Assessments
When considering development policies or programs, PSIAs are oft en used to
design complementary measures aimed at mitigating adverse impacts on the
poor. From a political economy perspective, they may also justify measures to
redistribute some or all of the gains from the winners to the losers from projects
and reforms, regardless of whether the losers are poor or not. PSIA work is not
common in the case of urban upgrading projects, however, because the expectation
is that those projects can only create winners. Only in the case of property
reclamation is there a concern about social impacts, and this is where safeguards
kick in. Th e discussion of the pitfalls of relying on reclamation for the renovation
of properties with architectural value challenges this expectation, as it shows that
important distributional issues arise even when no one loses in absolute terms.
Given how much social confl ict has been associated with property reclamation
for urban upgrading projects, perhaps distributional issues deserve a more careful
analysis than is done in standard practice.
Hedonic price functions make the implementation of PSIAs relatively straightforward.
As discussed above, rigorous project appraisal would require estimating