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The L2H2 Auction: Efficiency and Equity in the Assemblage of Land for Public Use Revision 5

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Author Info
Jonathan Pincus () (School of Economics, University of Adelaide)
Perry Shapiro
Abstract

The burden of redevelopment projects, whether or not they ultimately benefit the communities in which they are undertaken, is borne disproportionately by those displaced. Neighborhoods are destroyed and residents are made to leave a home they love, compensated only by its market value. The benefits and costs of redevelopment can only be estimated since there are no direct market tests. Here a mechanism, developed as an extension of two recent papers, by Lehavi and Lichts (L2) and by Heller and Hill (H2), provides a market-based efficiency test for a proposed project and a compensation rule that alleviates the disproportionate burden on displaced residents. Assembled property is sold at an auction. The reserve price (the lowest price at which the assembled property will be sold) is set so that all displaced residents receive at least their personal value of their property. A successful bid, one that claims the assembled property, is sufficient proof of efficiency.

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Paper provided by University of Adelaide, School of Economics in its series Working Papers with number 2008-06.

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Date of creation: Sep 2008
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Handle: RePEc:adl:wpaper:2008-06

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  1. Blume, Lawrence & Rubinfeld, Daniel L & Shapiro, Perry, 1984. "The Taking of Land: When Should Compensation Be Paid?," The Quarterly Journal of Economics, MIT Press, vol. 99(1), pages 71-92, February. [Downloadable!] (restricted)
  2. Buchanan, James M & Yoon, Yong J, 2000. "Symmetric Tragedies: Commons and Anticommons," Journal of Law & Economics, University of Chicago Press, vol. 43(1), pages 1-13, April.
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