Developers' choices under varying characteristic time and competition among municipalities

In a previous paper (Czamanski and Roth in Ann Reg Sci 46(1):101-118, 2011), we demonstrated that spatial variation in characteristic time can lead to leapfrogging and scattered development, especially in times when interest rates are low or negligible. We explained this result by modeling the simple behavior of developers in the context of a single city within a linear space. In this paper, we consider the case of two municipalities that leads to development policies that are reflected in different characteristic time functions in each territory. Myopic assumptions, in the sense that each city is interested only in what happens on its side of the border, can easily lead to unintended leapfrogging. Whereas competition between the cities, including in the case that each city takes into consideration processes in the entire region, can result in intentional leapfrogging or in spatially concentrated development, depending on the policy objectives of the authorities.