Who's Holding Out? An Experimental Study of the Benefits and Burdens of Eminent Domain

41 Pages Posted: 16 May 2014 Last revised: 4 Oct 2017

See all articles by Abel Winn

Abel Winn

Chapman University - The George L. Argyros School of Business & Economics

Matthew W. McCarter

University of Texas at San Antonio; Chapman University - Economic Science Institute

Date Written: October 3, 2017

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.

Keywords: land assembly, eminent domain, tragedy of the anticommons, Tullock contest

Suggested Citation

Winn, Abel and McCarter, Matthew W., Who's Holding Out? An Experimental Study of the Benefits and Burdens of Eminent Domain (October 3, 2017). Journal of Urban Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2437405 or http://dx.doi.org/10.2139/ssrn.2437405

Abel Winn

Chapman University - The George L. Argyros School of Business & Economics ( email )

333 N. Glassell
Orange, CA 92866
United States

Matthew W. McCarter (Contact Author)

University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States

Chapman University - Economic Science Institute ( email )

One University Dr.
Orange, CA 92866
United States

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