ECONOMICS UNIQUENESS

42 ■ THE ECONOMICS OF UNIQUENESS
is to the architectural value of its buildings. Th at sense of place can be lost if outside
investors move in fi rst and chase local residents away thanks to their better
understanding and deeper pockets. Put diff erently, for the same level of private
spending I*, keeping local residents in place ensures a higher heritage value ΔH
than bringing in outside investors does.
Community consultations can be used to provide information to local residents
on the windfall they could make by sticking to their property (that is, the
option value of waiting before selling). However, the livelihood component of
standard urban upgrading projects is usually focused on helping local residents
secure better earnings, rather than on helping them maximize the value of their
property. Similarly, social safeguards aim at ensuring that local residents whose
property is reclaimed for the project get compensated at “fair” market prices. But
those are the prices prevailing before the project is implemented and windfall
gains materialize. “Fairness” does not typically involve compensating for those
windfall gains. Th e numerous demonstrations and protests by local owners of
expropriated properties, as the implications of urban upgrading projects become
apparent, suggest that this is not merely a hypothetical concern.
Conclusion
Unfortunately, there are no obvious alternatives to the standard practice. In a
world of perfect information, local residents could be off ered access to fi nance for
an amount equivalent to I i *, or they could be compensated for their properties at
the going market price plus P i *. But there is usually too much uncertainty on the
outcome of the project for this to be a workable alternative. Even very competent
project teams would have a hard time deciding what the “right” levels of I i * and
P i * are in a specifi c context. In light of such uncertainty, any property transaction
at an early stage of the project is bound to result in serious regret by one of the
two parties involved. Th is likelihood suggests that, in spite of the emphasis put
by urban upgrading projects on individual property rights, facilitating property
transactions at an early stage may not be socially desirable.
An alternative to address this fundamental uncertainty is to shift the risk from
local residents to urban authorities. Th is is the equivalent of transforming those
residents into shareholders of the urban upgrading project, with the value of their
property V i as their equity in it. Like shareholders, local residents participating in
the project would have a say on the broader strategy for the area of intervention.
Once the strategy is approved, however, decisions would be in the hands of the
project managers. Th is arrangement has similarities with the consultations typically
preceding the implementation of urban upgrading projects, but it also puts
more constraints on the project.