The L2H2 Auction: Efficiency and Equity in the Assemblage of Land for Public Use

Perry Shapiro and Jonathan Pincus
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Perry Shapiro: Department of Economics, University of California-Santa Barbara

No 2008-06, School of Economics and Public Policy Working Papers from University of Adelaide, School of Economics and Public Policy

Abstract: The burden of redevelopment projects, whether or not they ultimately benefit the communities in which they are undertaken, is borne disproportionately by those displaced. Neighborhoods are destroyed and residents are made to leave a home they love, compensated only by its market value. The benefits and costs of redevelopment can only be estimated since there are no direct market tests. Here a mechanism, developed as an extension of two recent papers, by Lehavi and Lichts (L2) and by Heller and Hill (H2), provides a market-based efficiency test for a proposed project and a compensation rule that alleviates the disproportionate burden on displaced residents. Assembled property is sold at an auction. The reserve price (the lowest price at which the assembled property will be sold) is set so that all displaced residents receive at least their personal value of their property. A successful bid, one that claims the assembled property, is sufficient proof of efficiency.

Pages: 21 pages
Date: 2008
New Economics Papers: this item is included in nep-ppm and nep-ure
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