Who's holding out? An experimental study of the benefits and burdens of eminent domain

Abstract

A substantial literature identifies seller holdout as a serious obstacle to land assembly, implying that eminent domain is an appropriate policy response. We conduct a series of laboratory experiments to test this view. We find that when there is no competition and no eminent domain, land assembly suffers from costly delay and failed assembly; participants lose 18.1% of the available surplus. Much of the inefficiency is due to low offers from the buyers ("buyer holdout") rather than strategic holdout among sellers. 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 the sellers value the property more than the buyer. 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.

Does Statutory Incidence Matter for Tax Avoidance?

“…For example, do many negotiations between developers and landowners fail? The average failure rate in the experimental research of 10% seems rather low to lead to such price differences (Winn and McCarter, 2018). However, an important difference between laboratory experiments and real life is that landowners might expect a next developer coming along if the negotiations with a first developer fail.…”

“…Reservation prices -In the third robustness check, we look whether the premium for developed plots reflects a difference in reservation prices. Winn and McCarter (2018) argue that sellers who were approached directly by developers (passive sellers) have higher reservation prices than sellers who have put their house up for sale (active sellers). The authors state that the number of passive sellers will be higher in assembly projects than in single-plot projects since it is less likely to find adjacent plots that are all listed for sale than to find one listed parcel.…”

“…Both findings are not only novel for the empirical literature, but also confirm some of the results in a large experimental literature that studies land assembly and holdout in particular. This literature, which is reviewed in Winn and McCarter (2018), finds that landowners can increase their share of the surplus by holding out and that this behaviour can cause negotiations to fail. Our first finding relates to the work of Isaac et al (2016), who show that more competition between landowners significantly increases the number of successful negotiations.…”

Like a jar of flies? A study of self-control in an organizational social dilemma with large stakes

“…The social dilemma paradigm is used to model the tension between self-control and cooperation in public goods dilemmas [8, 9, 10], volunteer dilemmas [11, 12], anti-commons resource dilemmas [13, 14], give-and-take-some dilemmas [15, 16], and commons resource dilemmas [17, 18]. It is the ubiquitous commons resource dilemma that is the focus of the current research.…”

Hold out in land assembly for residential development

“…About 10% of all the negotiations in the laboratory experimentsWinn and McCarter (2018) reviewed, failed.29 We prefer a linear probability model over a probit or logit model because of the large set of geographical fixed effects.However, our results are robust for different types of models.…”