Sequential Bargaining, Land Assembly, and the Holdout Problem
Although the holdout problem is a well-established part of legal and economic lore, the exact source of the problem is not well understood. The problem is usually attributed to high transaction costs or excessive bargaining power on the part of sellers once they recognize the scope of the project. In an effort to isolate the essential features of the problem, this paper considers the simplest possible setting in which a buyer bargains sequentially with a series of sellers, each of whose land is necessary to realize the gain from a large-scale project. Using ordinary Nash bargaining and assuming complete information, we identify a minimum set of factors that give rise to a holdout problem, which highlight the importance of commitment and the inefficiency of partial assembly.
|Date of creation:||Jun 2011|
|Date of revision:||Jan 2012|
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