By using a modified Cheung model of price control, we show that discriminatory zoning is economically an inefficient protectionist alternative to nondiscriminatory zoning. The exclusionary zoning on the Peak of Hong Kong arose in order to give Europeans a housing area free from economic price competition with the Chinese. Documentary evidence is adduced to support this view of the law. Such zoning collapsed after the Second World War when European owners needed to realize their capital. Land-transaction records of certain sites on the Peak are analysed to support this interpretation. Without claiming to offer an exclusive explanation as to the formation of discriminatory law, we advance the case that discrimination is economically inefficient and will be abolished once the favoured group ceases to benefit from its continuation.

Figure 1. A model of discriminatory and nondiscriminatory zoning for a housing area (note that two demand curves, upon horizontal summation, cannot be parallel; the outer curve is less steep).
Figure 1. A model of discriminatory and nondiscriminatory zoning for a housing area (note that two demand curves, upon horizontal summation, cannot be parallel; the outer curve is less steep).