This study presents five contributions to the ongoing urban informality debate. First, it offers a comparative study land use regulation and management of 22 metropolitan areas in 10 Latin American countries. Second, it creates a comprehensive database encompassing their 336 municipalities. Third, it analyses numerous regulatory measures and brings special consideration to enforcement. Fourth, it considers the connection between land-based finance schemes, and informal land and housing development. And fifth, and perhaps most importantly, it disentangles the controversy concerning informality determinants, providing evidence that the variation in informality across jurisdictions is only partially explained by household’s socioeconomic or vulnerability characteristics, and that the land use regulation environment has a large and positive association with the growth of the informal sector.

This study finds that restrictive zoning does indeed affect urban informality, and that these effects are amplified in various faster-growing, medium-sized cities. It also identifies the negative effects on formality of higher residential approval costs and tighter processes (in the form of more authorities involved in authorization), and the positive effects of inclusionary policies and the use of innovative land management tools. These results provide useful implications for planning authorities designing the land use and land management environment.

Theory predicts that central planners manage the aggrievement of pressure groups when distributing resources. However, empirical evidence of managing aggrievement is rare. We fill this gap using the Opportunity Zone (OZ) program, in which governors selected low-income census tracts to become OZs and receive investment incentives. Using governors' OZ selections, we estimate a model that identifies governors' aversion to aggrieving local constituents. The model fits the local aggrievement reported by city/county officials, it also reveals that managing aggrievement resulted in OZs that stimulated 45\% less investment and that contain 20-thousand fewer poor families and 348-thousand (223-thousand) fewer black (Hispanic) residents.

We propose to theoretically and empirically show that local governments ex-ante enact restrictive zoning policies to incentivize ex-post real estate developers to provide in-kind provisions of local public services. Given that local policy platforms are time-varying and uncertain, the enactment of restrictive zoning policies creates a portfolio of real options that the city can exercise in the future. We first develop a real-option model of incentive zoning that encompasses the bargaining game between cities and developers over market-rent and social housing units: the local public goods currently sought by many cities. We show that local governments change zoning regulations to receive in-kind local public services; despite the absence of value and tax increases. Using New York City incentive zoning data, we show that the designation of eligible blocks increases the provision of social housing, the amount of built space, and land prices, but does not increase assessed values or property taxes; consistent with the theoretical model. This result has important consequences for the efficiency of the provision of public services and welfare.