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A Bargaining Model of Holdouts and Takings

Thomas J. Miceli and Kathleen Segerson
American Law and Economics Review
Vol. 9, No. 1 (Spring 2007), pp. 160-174
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/42705513
Page Count: 15
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A Bargaining Model of Holdouts and Takings
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Abstract

The holdout problem is commonly cited as the justification for eminent domain, but the nature of the problem is not well understood. This article models the holdout problem in a bargaining framework, where a developer seeks to acquire several parcels of land for a large-scale development. We show that in the absence of eminent domain, holdouts are a significant threat, resulting in costly delay. However, if the developer has the power to use eminent domain to acquire the land from holdouts, all sellers will bargain, thus avoiding delay. An offsetting cost is that owners may negotiate prices below their true value, possibly resulting in excessive transfer of land to the developer.

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