Second-Best Mechanisms for Land Assembly and Hold-Out Problems
Zachary Grossman (),
Jonathan Pincus (),
Perry Shapiro and
Duygu Yengin ()
No 2018-14, School of Economics Working Papers from University of Adelaide, School of Economics
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-nance (search for similar items in EconPapers)
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Journal Article: Second-best mechanisms for land assembly and hold-out problems (2019)
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