From Samurai to Skyscrapers

Whether transaction costs to assemble or split land can persistently hinder urban land use remains unknown. Constructing a 100 m*100 m-cell-level dataset of central Tokyo from the 19th-century pre-modern era to the 21st-century skyscraper era, the paper presented in this Mannheim Applied Seminar studies how initial lot fragmentation has affected urban development. The authors exploit a plausibly exogenous supply shock of large lots in 1868, the release of local lords’ estates (daimyo yashiki) scattered throughout central Tokyo. Using ordinary least squares and a regression discontinuity design, they find that cells previously used as local lords’ estates have larger lots today, implying that lot size persists through transaction costs. Such cells today see more tall buildings, higher land prices, and higher labor productivity of firms. The authors also find these effects only in the core area, suggesting higher transaction costs in this area. Finally, the effect of lot size on land prices became positive only after the rise of skyscrapers. This implies that optimal lot size became larger and assembly friction became more salient in the skyscraper age. Overall, contrary to the Coase theorem, initial lot allocation affects the urban economy, particularly in the core area, despite the large benefits of land assembly.