Governing Communities by Auction
Bar Ilan University - Faculty of Law; University of San Diego School of Law
University of Pennsylvania Law School; Bar Ilan University - Faculty of Law
University of Chicago Law Review, Vol. 81, P. 1, 2014
U of Penn, Inst for Law & Econ Research Paper No. 14-20
San Diego Legal Studies Paper No. 14-160
Common interest communities have become the property form of choice for many Americans. As of 2010, sixty-two million Americans lived in common interest communities. Residents benefit from sharing the cost of common amenities – pools, lawns, gazebos – and from rules that ensure compliance with community expectations. But decisionmaking in common interest communities raises serious concerns about minority abuse and manipulation, a problem well known to all property law students. Decisions about which amenities will be provided and which rules will be enacted are typically made through some combination of delegation and voting. Delegates often act for their own benefit, and, for a variety of reasons, voting fails to capture the preferences of the community.
This Article suggests a better way. Building upon the pioneering work of Vickrey, Clarke, and Groves, we propose a novel auction system that captures the intensity of resident preferences while preserving the honesty of declared preferences. The use of auction theory induces truthful revelation of preferences by participants and reflects the intensity of preference for any given policy outcome. As a result, our system allows communities to make better decisions and makes common interest communities more responsive to the needs of residents.
Number of Pages in PDF File: 27
Keywords: common interest communities, collective choice, auction theory, property management
JEL Classification: D70, D44, K11
Date posted: May 5, 2014 ; Last revised: June 24, 2014