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Free Riders, Holdouts, and Public Use: A Tale of Two Externalities

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  • Thomas J. Miceli

    (University of Connecticut)

Abstract

Free riders and holdouts are market failures that potentially impede the completion of otherwise beneficial transactions. The key difference is that the free rider problem is a demand side externality that requires taxation to compel payment for a public good, while the holdout problem is a supply side externality that requires eminent domain to force the sale of land for large scale projects. This paper highlights that distinction between these two problems and uses the resulting insights to clarify the meaning of the public use requirement of the Fifth Amendment takings clause.

Suggested Citation

  • Thomas J. Miceli, 2009. "Free Riders, Holdouts, and Public Use: A Tale of Two Externalities," Working papers 2009-01, University of Connecticut, Department of Economics.
  • Handle: RePEc:uct:uconnp:2009-01
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    References listed on IDEAS

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    1. 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.
    2. Flavio Menezes & Rohan Pitchford, 2004. "A model of seller holdout," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(2), pages 231-253, August.
    3. 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.
    4. Dixit, Avinash & Olson, Mancur, 2000. "Does voluntary participation undermine the Coase Theorem?," Journal of Public Economics, Elsevier, vol. 76(3), pages 309-335, June.
    5. Friedmann, Daniel, 1989. "The Efficient Breach Fallacy," The Journal of Legal Studies, University of Chicago Press, vol. 18(1), pages 1-24, January.
    6. Florenz Plassmann & T. Nicolaus Tideman, 2008. "Accurate Valuation in the Absence of Markets," Public Finance Review, , vol. 36(3), pages 334-358, May.
    7. Thomas J. Miceli & Kathleen Segerson & C. F. Sirmans, 2007. "Tax Motivated Takings," Working papers 2007-43, University of Connecticut, Department of Economics.
    8. Strange William C., 1995. "Information, Holdouts, and Land Assembly," Journal of Urban Economics, Elsevier, vol. 38(3), pages 317-332, November.
    9. Cohen, Lloyd, 1991. "Holdouts and Free Riders," The Journal of Legal Studies, University of Chicago Press, vol. 20(2), pages 351-362, June.
    10. Miceli, Thomas J. & Segerson, Kathleen & Sirmans, C.F., 2008. "Tax Motivated Takings," National Tax Journal, National Tax Association;National Tax Journal, vol. 61(4), pages 579-591, December.
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    Cited by:

    1. Thomas Miceli, 2014. "The color of law: an economic theory of legal boundaries," European Journal of Law and Economics, Springer, vol. 38(2), pages 185-209, October.
    2. Isaac, R. Mark & Kitchens, Carl & Portillo, Javier E., 2016. "Can buyer “mobility” reduce aggregation failures in land-assembly?," Journal of Urban Economics, Elsevier, vol. 95(C), pages 16-30.
    3. Thomas J. Miceli, 2014. "The Cost of Kelo: Are Property Taxes a Form of Public Use?," Working papers 2014-35, University of Connecticut, Department of Economics.

    More about this item

    Keywords

    Eminent domain; free riders; holdouts; public use; takings;

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law

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