Negative externalities generated by the rational actions of individual decisionmakers sometimes have large-scale repercussions on urban structure that backfire on all concerned. Such a situation, involving the externalities of intensive development in low-density areas, was recently addressed by the Los Angeles Planning Department. In an attempt to explore the complex logic of that phenomenon and draw out any relevant policy implications, a dynamic model of the interaction between urban structure and individual behavior is outlined in this paper. This consists of a submodel simulating the spatial distribution of densities and development payoffs in an urban area, and a second one modelling the choice developers have either to cooperate or not to cooperate with an official urban plan. Although the model could in principle be implemented, it may be more valuable in a planning context as a conceptual framework for helping planners think through the intricacies of this very complex situation.