Understanding How Land is Exchanged: Co-ordination Mechanisms and Transaction Costs

Abstract

This paper seeks to increase our understanding of how land is exchanged between suppliers and demanders. Most current land-price theories, and the land-use models which are derived from them, assume that co-ordination between suppliers and demanders is achieved through the price mechanism. There are, however, other possible co-ordination mechanisms, including imposed rules and mutual trust. In order to take account of these, the effect of institutions has to be included in the theories. Transaction cost economics, as one strand of institutional economics, seeks to explain which co-ordination mechanism is chosen in practice. In this paper, the application of these ideas is illustrated with findings from a detailed survey of how Dutch housing associations acquire land. It appears that these housing associations choose to acquire land through the mechanism of mutual trust when there is a network in place which they can use, and to acquire through the market when that mechanism is not available. This application shows how the theoretical ideas can be operationalised and tested in practice. If this were done more widely, the assumption that price is the main co-ordination mechanism could be tested critically. The outcome would be important not only for land-price theory, but also for land-use policy.

Replication through partnership: the evolution of partnerships between community land trusts and housing associations in England

“…Networks and partnerships have been important for the delivery of social and affordable housing as part of inclusionary housing schemes, where the involvement of a range of stakeholders has been key to securing low-cost housing as part of market-rate developments (de Kam et al, 2014). Similarly, Needham and de Kam (2004) argue that, rather than viewing land acquisition for housing development as a rational market-based financial transaction, land is often acquired through networks of mutual trust and collaboration between different stakeholders and within different policy frameworks that encourage such relationships. Sturzaker (2011) argues that community empowerment in planning processes, through consultation and involvement in decision-making, can help to overcome opposition to affordable housing in rural areas.…”

Debates in the Methodology of Economics and the Value of an Environmental Amenity

“…Ball, 1998;Kauko, 2004;Needham and de Kam, 2004;Adams et al, 2005). Needham and de Kam (2004) discuss co-ordination mechanisms and transaction costs in land transactions, and assert that trust (embedded in rules) may be more important than price-clearing in land sales; thus, we need a better understanding of non-market institutions in all circumstances where non-price based allocation exists. Using a case study from the Netherlands they show how large housing associations have minimised transaction costs by forming trusts.…”

Dealing with private property for public purposes : an interdisciplinary study of land transactions from a micro-scale perspective

“…Existing theories are empirically tested by comparing predicted outcomes with actual outcomes, the result of which are never fully convincing. Needham and de Kam (2004) state that "an alternative way of testing the theories would be by Chapter 1. Introduction investigating the separate transactions: do these take place as assumed?…”

“…This notion of uncertainty is related to Williamson's notion of bounded rationality, referring to the fact that the complexity of the decision is too large for the human mind to handle. Needham and De Kam (2004) applied transaction costs theory to land acquisition by Dutch housing associations and found that for the majority of transactions, trust rather than price was the main aspect that determined whether the association would decide to buy a certain parcel of land. Needham and De Kam distinguished different coordination mechanisms for land transactions including price, rules and trust, and showed that the neo-classical assumption that price is always the coordination mechanism can be upended.…”

“…Various authors have argued that the dominant, neo-classical approach towards the land market fails to explain the mechanisms that influence land transactions. New knowledge is therefore required (Ball, 1998;Needham and de Kam, 2004;Samsura et al, 2010). This knowledge is for example needed to enhance the quality of multi-actor based land-use modelling (Ligtenberg et al, 2001;Newburn et al, 2005).…”