ECONOMICS UNIQUENESS

INVESTING IN THE SENSE OF PLACE ■ 41
the capital gains ΔV i for each property or type of property in the area of intervention.
Th e socially optimal decision on which properties with architectural value
to preserve allows refi ning the estimates, directly in the case of those properties
and indirectly in the case of other properties benefi tting from the increase ΔH
in the heritage value of the area. Th erefore, the micro-simulations needed for
rigorous project appraisal already contain some of the most important information
needed for a rigorous PSIA. Th e only element missing is information on the
socioeconomic status of the owners of the properties in the area. But that information
can be collected as part of project preparation.
Even a cursory PSIA would provide useful guidance regarding property reclamation.
If the expected capital gains ΔV i from the project are modest, relying on
standard social safeguards should not be a source of major social tension. On the
other hand, if the expected ΔV i is large, denying this windfall to a subset of local
residents may be problematic.
Local Residents versus Outside Investors
Another potentially important distributional issue to consider is the relationship
between local residents and outside investors. Standard urban upgrading projects
assume that individual property rights are a prerequisite of effi ciency. By allowing
local residents to sell their properties to outside investors, individual property
rights ensure that investment can be attracted to the area of intervention. Because
transactions are on a voluntary basis, property rights also ensure that local residents
are adequately compensated if they decide to transfer their buildings to
outside investors.
However, there are two reasons why actual outcomes may not be ideal: these
are access to fi nance and asymmetric information. If successful, the project should
lead to a short-term increase ΔV 1 in the prices of properties in the intervention
area, and to an even larger increase ΔV* as private spending levels converge to
their equilibrium level. Th is appreciation in property prices will be greater than
what is spent on upgrading, demolishing, and rebuilding, as refl ected in the positive
profi ts P 1 and P*, respectively. Th us, if outside investors have better access
to fi nance than local residents, they may be in a better position to appropriate
the profi ts from urban upgrading. If local residents do not have enough clout
to understand the implications of the project, they may exercise their property
rights too early for their own good.
Th e neglect of this distributional issue could be justifi ed in the case of standard
urban upgrading projects on the grounds that the transactions involved are voluntarily.
But it is questionable in the case of projects with a cultural dimension.
In the latter, the sense of place associated with the area of intervention is typically
related to its local population, its culture, and its economic activity, as much as it