Second-best mechanisms for land assembly and hold-out problems

Zachary Grossman, Jonathan Pincus, Perry Shapiro and Duygu Yengin ()

Journal of Public Economics, 2019, vol. 175, issue C, 1-16

Abstract: Land can be inefficiently allocated when attempts to assemble separately-owned parcels are frustrated by holdouts. Eminent domain can be used neither to gauge efficiency nor to determine adequate compensation. We characterize the least-inefficient class of direct mechanisms that are incentive compatible, self-financing, and protect the property-rights of participants. The second-best mechanisms, which we call Strong Pareto (SP), utilize a second-price auction among interested buyers, with a reserve sufficient to compensate fully all potential sellers, who are paid according to fixed and exhaustive shares of the winning buyer's offer. These mechanisms are strategy-proof (dominant-strategy incentive compatible), individually rational and self-financing. They generate higher social welfare in each problem compared to any other type of mechanism satisfying these properties.

Keywords: Land assembly; Assembly problems; Complementary goods; Hold-out; Eminent domain; Property rights; Mechanism design; Desirable properties; Impossibility theorem; Second-best characterization; SP mechanism; Just compensation; Public-private partnerships; Incentive compatibility; Strategy-proofness; Individual rationality; Budget-balance; Self-finance (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Working Paper: Second-Best Mechanisms for Land Assembly and Hold-Out Problems (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:175:y:2019:i:c:p:1-16

DOI: 10.1016/j.jpubeco.2019.03.002

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