In this paper the urban growth model is extended to explore the interplay between a financing scheme and the evolution of the city, given the presence of the population disamenity effects. The model assumes the monocentric circular city in an open set ...

In this paper the urban growth model is extended to explore the interplay between a financing scheme and the evolution of the city, given the presence of the population disamenity effects. The model assumes the monocentric circular city in an open setting, where identical households are mobile and hence their utility level is exogenously determined. Given the presence of the population externality, the impact-fee financing scheme appears to induce the city less dispersed than the perpetual-sharing scheme. However, the equilibrium growth paths fail to secure a maximum level of social welfare. Then, the existing financing methods must distort urban growth by generating a welfare loss in the city's evolution. The inefficiency claim of the existing financing schemes justifies the imposition of a new suitable development fee, which would elicit the efficient growth path, in addition to the existing payments. Although the strategy of charging an additional fee may be theoretically sound, however, it is not feasible for the government to implement the policy. Imposition of a growth control law, which would contribute to minimizing the loss of efficiency, is rather recommended as a second best strategy.