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The holdout problem and urban sprawl: Experimental evidence

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  • Cadigan, John
  • Schmitt, Pamela
  • Shupp, Robert
  • Swope, Kurtis

Abstract

Conventional wisdom as well as economic theory suggests it is more costly to reassemble fragmented land due to transactions costs and strategic bargaining costs. Both costs are expected to increase with the number of sellers. Inefficient allocation of land resources may result including property entropy (Parisi, 2002), urban sprawl (Miceli and Sirmans, 2007) and deteriorating inner cities. Given the difficulty of observing actual values attached by buyers and sellers to land, little empirical evidence exists to support the conventional wisdom and theoretical work. We use experimental methods to examine transactions costs and strategic bargaining costs in a land-assembly market game with one buyer, 1-4 sellers, and complementary exchanges. The buyer's final earnings vary inversely with the number of sellers, ceteris paribus, indicating an incentive to purchase consolidated land. Delay costs reduce holdout, but result in lower payoffs for both buyers and sellers. Competition between sellers reduces holdout and the buyer's total purchase price.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 69 (2011)
Issue (Month): 1 (January)
Pages: 72-81

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Handle: RePEc:eee:juecon:v:69:y:2011:i:1:p:72-81

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Web page: http://www.elsevier.com/locate/inca/622905

Related research

Keywords: Holdout problem Land assembly Urban sprawl;

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Cited by:
  1. Parente, Michael D. & Winn, Abel M., 2012. "Bargaining behavior and the tragedy of the anticommons," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 84(2), pages 475-490.
  2. Kurtis Swope & Pamela Schmitt & John Cadigan & Ryan Wielgus, 2010. "Contracts, Behavior, and the Land-Assembly Problem:An Experimental Study," Departmental Working Papers, United States Naval Academy Department of Economics 29, United States Naval Academy Department of Economics.

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