Regulation and Informality: guidelines for more inclusive cities

This dissertation examines how urban building regulations shape housing markets in developing countries characterized by the coexistence of formal and informal sectors. From a law-and-economics perspective, it analyzes how legal rules governing land use and construction affect housing supply, informal settlements, and urban equilibrium outcomes in contexts of weak enforcement and institutional heterogeneity. Using quasi-experimental methods, novel municipal data, and theoretical modeling, the thesis studies regulatory change in Colombia. The first chapter exploits a regulatory discontinuity at the Medellín–Bello border to estimate the causal effect of flexible rules on informality. It shows that regulatory relaxation reduces informal housing locally by expanding formal construction, but also displaces vulnerable households toward peripheral areas. The second chapter constructs a regulatory intensity index and applies a staggered difference-in-differences design, finding that flexibility increases housing supply mainly in small satellite cities, with limited effects in metropolitan cores. The third chapter develops a model of dual housing markets, showing that informality allows cities to absorb population inflows beyond standard predictions. Overall, the dissertation shows that legal rules shape urban outcomes in systematic but context-dependent ways: their effects depend not only on formal design, but also on enforcement capacity, market segmentation, and the broader institutional environment.