The Problem with the Holdout Problem

Review of Law and Economics, Volume 9, Issue 2 (Sep 2013)

23 Pages Posted: 12 Nov 2014 Last revised: 20 Dec 2014

See all articles by Edward J. Lopez

Edward J. Lopez

Western Carolina University

J. R. Clark

The University of Tennessee at Chattanooga

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2013

Abstract

Recent theoretical work has investigated the exact mechanism(s) by which holdouts create inefficiency and thereby justify eminent domain. Parallel work shows that state courts and legislatures either prohibit or grant discretion to local authorities to use eminent domain for economic development. This paper extends recent sequential bargaining models of strategic holdout, to incorporate political inefficiencies that may emerge when granting discretionary powers. Using eminent domain on non-holdouts substitutes for voluntary exchange, which is optimal, and attracts rent seeking by developers. Therefore, the efficiency justification for eminent domain is conditional. It depends on the relative magnitudes of the holdout and political sources of inefficiency.

Keywords: holdouts, eminent domain, takings, market failure, government failure

Suggested Citation

Lopez, Edward J. and Clark, Jeff R., The Problem with the Holdout Problem (September 1, 2013). Review of Law and Economics, Volume 9, Issue 2 (Sep 2013). Available at SSRN: https://ssrn.com/abstract=2522458

Edward J. Lopez

Western Carolina University ( email )

College of Business
Forsyth 224C
Cullowhee, NC 28723
United States

HOME PAGE: http://www.edwardjlopez.com

Jeff R. Clark (Contact Author)

The University of Tennessee at Chattanooga ( email )

Department of Economics
Suite 313 Fletcher Hall
Chattanooga, TN 37403-2598
United States

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