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Contracts, Behavior, and the Land-Assembly Problem:An Experimental Study

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  • Kurtis Swope

    ()
    (United States Naval Academy)

  • Pamela Schmitt

    ()
    (United States Naval Academy)

  • John Cadigan

    ()
    (Gettysburg College)

  • Ryan Wielgus

    ()
    (United States Navy)

Abstract

We use multilateral bargaining experiments to examine how the order of bargaining (simultaneous or sequential) and the nature of contracts (contingent or non-contingent) affect the duration of bargaining, the efficiency of exchange, and the distribution of the surplus in a laboratory land-assembly game with one buyer and two sellers. While theory predicts an earnings advantage for the first seller when contracts are sequential and contingent, and for the second seller when contracts are sequential and non-contingent, we find that when a seller has an earnings advantage in the laboratory, it is the first seller to bargain in the non-contingent contract treatments. This result contradicts conventional wisdom and a common result from the land-assembly literature that it is advantageous to be the last seller to bargain, a so-called “holdout”. We also find evidence that sequential bargaining leads to more aggressive seller bargaining and greater bargaining delay than simultaneous bargaining, ceteris paribus, and that non-contingent contracts increase bargaining delay and the likelihood of failed agreements. The majority of sellers indicated a preference for being the first seller to bargain in all sequential bargaining treatments.

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File URL: http://www.usna.edu/EconDept/RePEc/usn/wp/usnawp29.pdf
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Bibliographic Info

Paper provided by United States Naval Academy Department of Economics in its series Departmental Working Papers with number 29.

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Length: 32 pages
Date of creation: Jan 2010
Date of revision:
Handle: RePEc:usn:usnawp:29

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  1. Strange William C., 1995. "Information, Holdouts, and Land Assembly," Journal of Urban Economics, Elsevier, vol. 38(3), pages 317-332, November.
  2. Flavio Menezes & Rohan Pitchford, 2004. "A model of seller holdout," Economic Theory, Springer, vol. 24(2), pages 231-253, August.
  3. John Cadigan & Pamela Schmitt & Robert Shupp & Kurtis Swope1, 2009. "An Experimental Study of the Holdout Problem in a Multilateral Bargaining Game," Southern Economic Journal, Southern Economic Association, vol. 76(2), pages 344-457, October.
  4. 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.
  5. Stephanie Lau, 2008. "Information and bargaining in the hold-up problem," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 266-282.
  6. Schmitz, Patrick W., 2008. "Incomplete contracts, the hold-up problem, and asymmetric information," Economics Letters, Elsevier, vol. 99(1), pages 119-122, April.
  7. Menezes, Flavio & Pitchford, Rohan, 2004. "The land assembly problem revisited," Regional Science and Urban Economics, Elsevier, vol. 34(2), pages 155-162, March.
  8. Tore Ellingsen & Jack Robles, 2000. "Does Evolution Solve the Hold-up Problem," Econometric Society World Congress 2000 Contributed Papers 1525, Econometric Society.
  9. Miceli, Thomas J. & Sirmans, C.F., 2007. "The holdout problem, urban sprawl, and eminent domain," Journal of Housing Economics, Elsevier, vol. 16(3-4), pages 309-319, November.
  10. Eckart, Wolfgang, 1985. "On the land assembly problem," Journal of Urban Economics, Elsevier, vol. 18(3), pages 364-378, November.
  11. Thomas J. Miceli & Kathleen Segerson, 2007. "A Bargaining Model of Holdouts and Takings," American Law and Economics Review, Oxford University Press, vol. 9(1), pages 160-174.
  12. Gneezy, Uri & Haruvy, Ernan & Roth, Alvin E., 2003. "Bargaining under a deadline: evidence from the reverse ultimatum game," Games and Economic Behavior, Elsevier, vol. 45(2), pages 347-368, November.
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