ZONING A CROSS-BORDER CITY by Juan Carlos Bárcena-Ruiz and F. Javier Casado-Izaga 2015 Working Paper Series: IL. 89/15 Departamento de Fundamentos del Análisis Económico I Ekonomi Analisiaren Oinarriak I Saila University of the Basque Country ZONING A CROSS-BORDER CITY Juan Carlos Bárcena-Ruiz∗ and F. Javier Casado-Izaga† Universidad del País Vasco, UPV/EHU. Abstract This paper investigates zoning in a cross-border linear city that con- sists of two bordering towns. In each town a local regulator has a say in the location of the local firm. The incentive to gain consumers from the other town, or not to lose local consumers, may push regulators to approve only locations for firms close enough to the frontier. When zon- ing is costly an asymmetric equilibrium may emerge: only one regulator resorts to zoning. In the case of towns of different sizes the regulator of the larger town is the only one that zones in an asymmetric equilibrium. JEL Classification: L13, R32, R38. Key words: Zoning, spatial competition, location choice. ∗Corresponding author. Departamento de Fundamentos del Análisis Económico I. Facul- tad de Ciencias Económicas y Empresariales. Universidad del País Vasco, UPV/EHU. Av. Lehendakari Agirre 83, 48015, Bilbao, Spain. Phone: + 34 94 601 38 29. Fax: + 34 94 601 38 91. E-mails:
[email protected],
[email protected]. †Financial support from Ministerio de Ciencia y Tecnología (ECO2012-32299) and the University of the Basque Country (EHU14/05) is gratefully acknowledged. 1 1 INTRODUCTION Modern cities exercise their zoning authority to regulate the use of land within their limits.