Land value largely depends on location advantages and decisions concerning the use of
neighbouring sites. This interdependent quality of urban land is referred to by economists in terms
of externalities: those impacts (positive or negative) that are not reflected in the pricing system
of land (Loughlin, 1988). Betterment and worsenment are typically derived from externalities:
betterment is a positive externality generated neither by the capital investment nor by the
decisions of land users themselves; worsenment is a negative externality in the same way. In dealing
with the externality issue, the Pigovian argument and the Coase theorem are most influential. The
Pigovian approach to internalizing an externality is through taxation and regulation (Pigou, 
1929). For instance, a factory emits smoke that pollutes the environment, thereby incurring damage
to the community. The costs of polluting, however, are not incorporated into the production costs of
the factory. Thus a divergence between ‘marginal social net product and marginal private net
You are not authenticated to view the full text of this chapter or article.
Get access to the full article by using one of the access options below.