Law, Economics and Urban Design:

Dispelling Laissez-faire Illusions in a New Age of Sustainable Planning

Summary of Presentation
Dario Navarro*
International Advisor
Energy Regulatory Commission
Ministry of Energy, Government of Thailand
Urban designers and urban planners should never uncritically rely on policy prescriptions
purportedly derived from neoclassical economic theory concerning their respective disciplines or
specialized praxis.

Although neoclassical economists often claim their advice is based on such

supposedly objective, universal, scientific concepts as Pareto efficiency and rationality, nothing could
be further from the truth. Neither the theoretical foundation of neoclassical economics nor its policy
prescriptions are objective or universal or scientific, but, instead, constitute little more than convoluted
expressions derived from a mathematized libertarian ideology that attempts to conceal its highly
subjective nature and myriad value judgments beneath a mind-numbing cascade of complicated equations
that define toy models with virtually no connection to reality other than the exhortation that they
somehow offer policymakers a guide for optimizing the social outcome of economic activity by
*

Dario Navarro is a U.S. international lawyer, energy consultant and former law and business school professor.
He has taught courses on international law, economics, political economy, finance, risk management and
international relations at major university law and business schools in the United States, Japan, Spain and Australia.
He holds an LL.M. from the Yale Law School, an M.P.A. from the Princeton University Woodrow Wilson School
of Public and International Affairs, a J.D. from the Northwestern University School of Law and a B.A. from
Marquette University.
The accompanying PowerPoint presentation was given during the general session on International
Perspectives at the International Urban Design Forum hosted by the Urban Design and Development International
(UDDI) Program of the Faculty of Architecture and Planning of Thammasat University on 19 March 2104 at the
Rangsit Campus, Khlong Luang, Pathumthani, Thailand 12121.
The views expressed in this summary of that presentation and the presentation itself are those of the author
alone and do not necessarily reflect the views of the Energy Regulatory Commission of Thailand or any other
institution or entity with which the author is affiliated. All materials, quotations, photographs and images that
appear in the accompanying presentation are being used for non-commercial, educational purposes under the
doctrine of fair use. This summary and the accompanying presentation represent a unique compilation of excerpted
material and original work subject to comprehensive protection under applicable copyright law.
2014 by Dario Navarro. All rights reserved.

promoting the relentless pursuit of individual self-interest as if the entire process were guided by an
invisible hand.
Neoclassical economists have simply framed the problem incorrectly based on an a priori
ideological paradigm in which planning is disconnected from and antithetical to market forces, but this is
deeply mistaken. It is not a question of planning or the market. This is a false dichotomy. Government
intervention, regulation and planning actually define the market. Planning and the market will always
coexist in a mixed economy. The real question is how we define the market through government policy
and which social resources we allow to be allocated on the basis of price (i.e., ability to pay) and which
we decide to allocate on the basis of alternative values (e.g., fundamental human need or justice).
The accompanying presentation explores the foregoing thesis under the following four major
headings:
(1)

Is Neoclassical Economics Relevant to Urban Design?

(2)

The Arrow-Debreu Model and the Theory of Second Best

(3)

Utility and Pareto Efficiency for Urban Planners

(4)

A New Science of the City or New Moral Vision?

1. Is Neoclassical Economics Relevant to Urban Design?

In this section, the general

disciplinary disarray of neoclassical economics is briefly summarized and key concepts from the
neoclassical economics literature relevant to the fields of urban design and urban planning are explored.
Since the benefits of urban planning may be enjoyed by all in a nonrivalrous fashion and cannot be
easily appropriated on an exclusive basis, urban planning services qualify as a public good. Even
neoclassical economists recognize that markets will not ordinarily supply an optimal amount of such a
public good because free rider problems make pricing difficult or impossible. Mainstream economic
theory, however, seems unable to ascertain how much urban planning is too much or too little. When
does planning fulfill a need resulting from a so-called market failure and when does it become an
inefficient, irrational exercise of abhorrent state power?

Neoclassical economics does not have a coherent answer to this fundamental question and seems
unable to specify how much planning is enough except with such vague appeals as cities should work
with less but better planning to allow market forces to achieve deus ex machina something
approximating an optimal global equilibrium. A tentative, admittedly conjectural three-tiered planning
control strategy is suggested as an alternative to any further reliance on the amorphous neoclassical
concepts of market failure and public goods.
2. The Arrow-Debreu Model and the Theory of Second Best. After briefly discussing the
many preposterous assumptions of the Arrow-Debreu Model, such as perfect competition, perfect
information, complete markets, perfect rationality, zero transaction costs, timelessness, and no
biophysical limits to growth, the implications of the painfully conspicuous fact that reality does not
conform to any of these assumptions is explored from the vantage of neoclassical economics very own
theory of second best. According to this theory, if reality does not conform to the neoclassical model
with respect to a single assumption, Pareto efficiency can only be achieved by completely abandoning the
model. Furthermore, once any departure from the ideal model occurs, it is unknown whether and to what
extent there will be an efficiency gain or loss in pursuing any given policy. Thus, it is difficult, if not
impossible, to see how the idealized, nonempirical models of neoclassical economics could be used as a
benchmark to guide or evaluate urban policy interventions in the real world where externalities are
ubiquitous. Since incremental improvements in the consistency between real world market structures and
those of the model admittedly yield no necessary improvement in efficiency, neoclassical economists
have utterly failed to persuasively establish why their particular set of subjective policy recommendations
should be given any special weight by urban designers or urban planners. Neoclassical economists may
have important points to make in urban policy debates, but such points should be correctly seen as
tentative normative recommendations, not positive, scientific prescriptions.
3. Utility and Pareto Efficiency for Urban Planners. The oft-neglected historical origin of
neoclassical economics peculiar version of the concept of utility is closely examined together with
recent criticisms of mainstream utility theory. Pareto efficiency is carefully analyzed as an outgrowth

of mid-twentieth century proto-fascist thought and ultimately found to be an inherently normative and
fundamentally incoherent concept. Neither utility nor Pareto efficiency, as developed and applied in
neoclassical economics, provides urban designers or urban planners with reliable, useful decision criteria
in their respective fields as these normative, pseudo-scientific terms conceal more than they reveal by
effectively excluding by assumption deontological considerations of fairness, morality and distributive
justice from the urban policymaking process.
4. A New Science of the City or New Moral Vision? Instead of trying to conceptualize
complex urban reality in terms of embarrassingly simplistic, nonempirical, a priori neoclassical models,
urban policymakers, planners and designers should begin by taking the city as it is, in all its complexity,
and build models inductively grounded in that urban reality. They should forthrightly and fearlessly
eschew the implicit neoclassical appeal to ideological preference and prejudice. Such an approach
implies greater future reliance upon evolving interdisciplinary developments in complexity science as
well as a deeper awareness of the moral issues implicit in every urban design and planning decision. The
disciplines of urban design and urban planning should seek to develop their own new science of the city
as well as an explicit, compelling moral vision based on fairness and democratic values to undergird what
science they can empirically discover for any science inevitably leaves gaping lacunae in which only
subjective moral judgments, not syllogistic deduction, can occur. Whatever new science evolves, it will
require courageous moral choice on the part of urban policymakers, informed by participatory processes
and a shared majoritarian conception of fairness, if it is to succeed in the daunting tasks that confront the
modern city in the twenty-first century and beyond.