Possible weaknesses of the market solution

If left to the market forces, the demolition of a historic building would take place rather quickly. On what grounds may economics justify an interference with this market solution? The case rests largely on the fact that with a historic building, assumptions implicit in the particular model will have to be qualified according to certain parameters.

The estimate of Gross Annual Returns (GARs), from which the present value of the historic building is derived, may ignore ‘option demand’. Where decisions are irreversible (as with the destruction of a historic building), interested people in culture and tradition may pay something just to postpone such a decision.

The difficulty lies in quantifying such ‘option demand’, but its existence is evident in the fact that many people subscribe voluntarily to, say, the National Trust and the World Wildlife Fund. The rest enjoy the option as “free riders”, but their demand should also be included. Such higher GARs will always give a higher present value to the building.

When Buying Real Estate in India, a plot of land, or a building situated in the vicinity of a historic building is a best option for an investment. Due to the shift in the tastes of the tourists from both international and domestic destinations towards, home stays are now getting popular. It will be easy for owners of houses and other structures to let out their valuable spaces on rent and thus generate significant income.

Land values appreciate faster in the vicinity of historic buildings when there is an increase in the number of visitors to these places. Since the government has taken up the promotion of the tourist centers rather seriously, major changes are expected in the near future.