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A Bargaining Model of Holdouts and Takings

  • Thomas J. Miceli
  • Kathleen Segerson

The holdout problem is commonly cited as the justification for eminent domain, but the nature of the problem is not well understood. This article models the holdout problem in a bargaining framework, where a developer seeks to acquire several parcels of land for a large-scale development. We show that in the absence of eminent domain, holdouts are a significant threat, resulting in costly delay. However, if the developer has the power to use eminent domain to acquire the land from holdouts, all sellers will bargain, thus avoiding delay. An offsetting cost is that owners may negotiate prices below their true value, possibly resulting in excessive transfer of land to the developer. Copyright 2007, Oxford University Press.

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Article provided by Oxford University Press in its journal American Law and Economics Review.

Volume (Year): 9 (2007)
Issue (Month): 1 ()
Pages: 160-174

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Handle: RePEc:oup:amlawe:v:9:y:2007:i:1:p:160-174
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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.
  2. Cohen, Lloyd, 1991. "Holdouts and Free Riders," The Journal of Legal Studies, University of Chicago Press, vol. 20(2), pages 351-62, June.
  3. Menezes, Flavio Marques & Pitchford, Rohan, 2001. "Chasing Patents," Economics Working Papers (Ensaios Economicos da EPGE) 411, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  4. Hermalin, Benjamin E, 1995. "An Economic Analysis of Takings," Journal of Law, Economics and Organization, Oxford University Press, vol. 11(1), pages 64-86, April.
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