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Who’s Holding Out? An Experimental Study of the Benefits and Burdens of Eminent Domain

Author

Listed:
  • Abel M. Winn
  • Matthew W. McCarter

    () (UTSA)

Abstract

Eminent domain is widely considered a necessary tool to avoid seller holdout and ensure efficient land assembly. We conduct a series of laboratory experiments that challenge this conventional wisdom. We find that when there is no competition and no eminent domain, land assembly suffers from costly delay and failed assembly, resulting in participants losing 18.1% of the available surplus. Much of this delay is due to low offers from the buyers rather than strategic holdout among sellers. Introducing weak competition in the form of a less valuable substitute parcel of land reduces delay by 35.7% and virtually eliminates assembly failure, so that only 11.5% of the surplus is lost. When buyers can exercise eminent domain the participants lose 18.6% of the surplus. This loss comes from spending money to influence the fair market price and forcing sellers to sell even when they value the property more than the buyer.

Suggested Citation

  • Abel M. Winn & Matthew W. McCarter, 2016. "Who’s Holding Out? An Experimental Study of the Benefits and Burdens of Eminent Domain," Working Papers 0154mkt, College of Business, University of Texas at San Antonio.
  • Handle: RePEc:tsa:wpaper:0154mkt
    as

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    File URL: http://interim.business.utsa.edu/wps/mkt/0004MKT-935-2016.pdf
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    References listed on IDEAS

    as
    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. 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.
    3. Cohen, Lloyd, 1991. "Holdouts and Free Riders," The Journal of Legal Studies, University of Chicago Press, vol. 20(2), pages 351-362, June.
    4. Thomas W. Hazlett, 2008. "Property Rights and Wireless License Values," Journal of Law and Economics, University of Chicago Press, vol. 51(3), pages 563-598, August.
    5. Bittlingmayer, George, 1988. "Property Rights, Progress, and the Aircraft Patent Agreement," Journal of Law and Economics, University of Chicago Press, vol. 31(1), pages 227-248, April.
    6. Munch, Patricia, 1976. "An Economic Analysis of Eminent Domain," Journal of Political Economy, University of Chicago Press, vol. 84(3), pages 473-497, June.
    7. 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.
    8. Arthur Zillante & Peter M. Schwarz & Dustin C. Read, 2014. "Land Aggregation Using Contingent and Guaranteed Payments," Southern Economic Journal, Southern Economic Association, vol. 80(3), pages 702-727, January.
    9. Shupp Robert & Cadigan John & Schmitt Pamela M. & Swope Kurtis J., 2013. "Institutions and information in multilateral bargaining experiments," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(1), pages 485-524, June.
    10. Steven Shavell, 2010. "Eminent Domain versus Government Purchase of Land Given Imperfect Information about Owners' Valuations," Journal of Law and Economics, University of Chicago Press, vol. 53(1), pages 1-27, February.
    11. 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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    More about this item

    Keywords

    Eminent Domain;

    JEL classification:

    • M30 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - General

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