The problem of fair division of surplus development rights in redevelopment of urban areas: Can the Shapley value help?

Many more people are expected to live in urban areas in the coming decades, and much of the physical transformation will take place in the built-up areas of cities. Landownership is a key factor in urban regeneration, and the fair division of benefits is a major obstacle to redeveloping urban land in a cooperative context. This paper aims to show that the Shapley value, a fair division scheme developed within the cooperative game theory framework, can be used to achieve a fair division of the surplus development rights among landowners remolding smaller and irregular parcels into bigger and regular ones, resulting in higher aggregate development rights. The methodology is illustrated by a case study of three parcels selected from the Karabaglar district in Izmir, Turkey, where surplus development rights are available for landowners cooperating for land amalgamation. The findings show that the Shapley values for the landowners satisfy the core conditions of the game and landowners can benefit from the highest possible development rights and share the surplus fairly. However, the current institutional setting has to be restructured to apply such division schemes.