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Second-Best Mechanisms for Land Assembly and Hold-Out Problems

Author

Listed:
  • Zachary Grossman

    (Department of Economics, Florida State University)

  • Jonathan Pincus

    (School of Economics, University of Adelaide)

  • Perry Shapiro

    (Department of Economics, University of California Santa Barbara)

  • Duygu Yengin

    (School of Economics, University of Adelaide)

Abstract

Land can be inefficiently allocated when attempts to assemble separately-owned parcels are frustrated by holdouts. Eminent domain can be used neither to gauge efficiency nor to determine adequate compensation. We characterize the least-inefficient class of direct mechanisms that are incentive compatible, self-financing, and protect the property-rights of participants. The second-best mechanisms, which we call Strong Pareto (SP), utilize a second-price auction among interested buyers, with a reserve sufficient to compensate fully all potential sellers, who are paid according to fixed and exhaustive shares of the winning buyer's offer. These mechanisms are strategy-proof (dominant-strategy incentive compatible), individually rational and self-financing. They generate higher social welfare in each problem compared to any other type of mechanism satisfying these properties.

Suggested Citation

  • Zachary Grossman & Jonathan Pincus & Perry Shapiro & Duygu Yengin, 2018. "Second-Best Mechanisms for Land Assembly and Hold-Out Problems," School of Economics and Public Policy Working Papers 2018-14, University of Adelaide, School of Economics and Public Policy.
    • Handle: RePEc:adl:wpaper:2018-14
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    Cited by:

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    3. Chaturvedi, Rakesh, 2023. "Cost of efficiency in trading perfect complements," Economics Letters, Elsevier, vol. 230(C).
    4. Soumendu Sarkar & Dhritiman Gupta, 2022. "Bargaining for Assembly," Working papers 319, Centre for Development Economics, Delhi School of Economics.
    5. Soumendu Sarkar, 2022. "Strategyproof and Budget Balanced Mechanisms for Assembly," Working papers 320, Centre for Development Economics, Delhi School of Economics.
    6. Tsai, I-Chun & Wang, Wen-Kai, 2022. "The value of land redevelopment in different types of properties: Considering the effect of hold-out problems on the development probability," Land Use Policy, Elsevier, vol. 119(C).
    7. Uyanik, Metin & Yengin, Duygu, 2023. "Expropriation power in private dealings: Quota rule in collective sales," Games and Economic Behavior, Elsevier, vol. 141(C), pages 548-580.
    8. Soumendu Sarkar, 2022. "Optimal mechanism for land acquisition," Review of Economic Design, Springer;Society for Economic Design, vol. 26(1), pages 87-116, March.
    9. Zillante, Artie & Read, Dustin C. & Seiler, Michael J., 2020. "Assembling land for urban revitalization in the presence of linchpin parcels and information asymmetries: An experimental investigation," Land Use Policy, Elsevier, vol. 99(C).

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