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An Experimental Study of the Holdout Problem in a Multilateral Bargaining Game

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Author Info

  • John Cadigan

    ()
    (Department of Economics, Gettysburg College, 300 North Washington Street, Gettysburg, PA 17325, USA)

  • Pamela Schmitt

    ()
    (Department of Economics, U.S. Naval Academy, 589 McNair Road, Annapolis, MD 21402, USA)

  • Robert Shupp

    ()
    (Department of Agricultural Economics, Michigan State University, 211E Agricultural Hall, East Lansing, MI 48824, USA)

  • Kurtis Swope1

    ()
    (Department of Economics, U.S. Naval Academy, 589 McNair Road, Annapolis, MD 21402, USA)

Abstract

When an economic exchange requires agreement by multiple independent parties, the potential exists for an individual to strategically delay agreement in an attempt to capture a greater share of the surplus created by the exchange. This ‘‘holdout problem’’ is a common feature of the land-assembly literature because development frequently requires the assembly of multiple parcels of land. We use experimental methods to examine holdout behavior in a laboratory bargaining game that involves multi-person groups, complementary exchanges, and holdout externalities. The results of six treatments that vary the bargaining institution, number of bargaining periods, and cost of delay demonstrate that holdout is common across institutions and is, on average, a payoff-improving strategy for responders. Both proposers and responders take a more aggressive initial bargaining stance in multi-period bargaining treatments relative to single-period treatments, but take a less aggressive bargaining stance when delay is costly. Nearly all exchanges eventually occur in our multi-period treatments, leading to higher overall efficiency relative to the single-period treatments, both with and without delay costs.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 76 (2009)
Issue (Month): 2 (October)
Pages: 344-457

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Handle: RePEc:sej:ancoec:v:76:2:y:2009:p:344-457

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  1. Ed Nosal, 2007. "Private takings," Working Paper 0713, Federal Reserve Bank of Cleveland.
  2. Menezes, Flavio Marques & Pitchford, Rohan, 2001. "The Land Assembly Problem Revisited," Economics Working Papers (Ensaios Economicos da EPGE) 427, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
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Cited by:
  1. Cadigan, John & Schmitt, Pamela & Shupp, Robert & Swope, Kurtis, 2011. "The holdout problem and urban sprawl: Experimental evidence," Journal of Urban Economics, Elsevier, vol. 69(1), pages 72-81, January.
  2. Kurtis Swope & Pamela Schmitt & John Cadigan & Ryan Wielgus, 2010. "Contracts, Behavior, and the Land-Assembly Problem:An Experimental Study," Departmental Working Papers 29, United States Naval Academy Department of Economics.
  3. Anita Gantner & Rudolf Kerschbamer, 2013. "Fairness and Efficiency in a Subjective Claims Problem," Working Papers 2013-30, Faculty of Economics and Statistics, University of Innsbruck.
  4. Usha Sridhar & Sridhar Mandyam, 2013. "A Group Utility Maximizer Mechanism for Land Assembly," The Journal of Real Estate Finance and Economics, Springer, vol. 47(3), pages 466-488, October.
  5. Parente, Michael D. & Winn, Abel M., 2012. "Bargaining behavior and the tragedy of the anticommons," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 475-490.

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