A new interpretation on the optimal density regulations: Closed and open city

Optimality of urban density regulations differs between a closed city and an open city. We demonstrate, by examining optimal floor area ratio (FAR) regulation, how to control building size to mitigate traffic congestion externality in a monocentric city. Results show that a closed city requires not only downward adjustment to the market density at boundary locations using maximum FAR regulation but also upward adjustment at central locations using minimum FAR regulation. On the other hand, an open city requires only the former. The common practice of imposing only maximum FAR regulation is thus insufficient for closed cities although it is effective for open cities.